The jobs numbers aren’t adding up. Immigration helps explain why.

Employment data from an establishment survey and from a household survey never precisely match. PHOTO: REUTERS
Employment data from an establishment survey and from a household survey never precisely match. PHOTO: REUTERS

Summary

Differing population estimates could explain a growing discrepancy in the numbers.

U.S. employment figures contain a mystery that has left many economists scratching their heads: How is the country generating so many jobs even while the unemployment rate has drifted up?

The emerging consensus: a surge in immigration. It not only explains inconsistencies in the jobs data but suggests the economy can keep adding plenty of jobs without overheating. That in turn would let the Federal Reserve still consider interest-rate cuts.

The Labor Department’s Bureau of Labor Statistics bases its monthly employment figures on two surveys. One survey of about 119,000 businesses and government agencies, called the establishment survey, is the main source for determining how many jobs the U.S. added each month. The other, a rotating survey of about 60,000 households, is used to calculate the unemployment rate and includes a separate employment estimate.

Data in the two surveys never precisely match, even after accounting for differences in the types of employment they cover—the establishment survey doesn’t include farmworkers, for example. But recently, the differences between the two have become extreme.

The establishment survey shows there were about 2.7 million more jobs in February than a year earlier. But household-survey figures adjusted to match the establishment survey’s employment concept show the economy added less than half as many jobs. The unemployment rate rose to 3.9% from 3.6% during that period.

To get its employment figure from the household survey, the Labor Department calculates the share of the population that is working and then applies it to population estimates from the Census Bureau. This might be the source of the discrepancy: That population estimate might be off.

The census estimates the U.S. population rose 0.5% in 2023 from a year earlier. But in January, the Congressional Budget Office estimated it rose by 0.9%. That difference was the result of the CBO’s effort to account for the millions of migrants who crossed the southwest border last year.

Based on the CBO estimates, a Brookings Institution analysis last month suggested the lower household-survey employment figures were driven by the census underestimating population growth. That implies the labor market could grow much faster without overheating.

Earlier, it looked as if the U.S. could add only about 100,000 jobs a month without driving the unemployment rate lower and increasing wage pressures.

“Lots and lots of people like me, every time they opened the employment report had in the back of their heads that anything above 100,000 is something out of steady state," said Wendy Edelberg, one of the economists who wrote the report. “And it turns out that that is just not the world we’re in."

Edelberg and her co-author Tara Watson estimate that the economy could have added 160,000 to 230,000 jobs a month last year without making the labor market tighter (still fewer than the 251,000 that the Labor Department’s establishment survey showed). This year, they peg that figure at 160,000 to 200,000 a month. And if the labor market can grow faster without adding to inflationary pressures, so can the economy.

For a number of Wall Street economists, the Brookings analysis amounted to an “Aha!" moment.

“The sense that immigration was probably quite a ways above trend in 2023—things make a lot more sense once you appreciate that," said Goldman Sachs chief U.S. economist David Mericle.

He notes that the increase in the unemployment rate has been led by an increase in the unemployment rate among foreign-born workers. That is consistent with an influx of immigrants increasing the supply of workers looking for the types of jobs that new arrivals to the U.S. often fill. An increased supply of workers also explains why other job-market indicators have remained strong. Layoff activity has been minimal, and the number of people filing claims for unemployment has been low.

Goldman’s economists raised their 2024 job and gross-domestic-product estimates to adjust for faster population growth. Economists at Morgan Stanley and JPMorgan Chase also notched up their forecasts for how many jobs the economy can add.

In his press conference following the Fed’s policy meeting last month, Fed Chair Jerome Powell acknowledged the implication of an increase in the supply of workers, driven in part by increased immigration. “In and of itself, strong job growth is not a reason for us to be concerned about inflation," Powell said.

The household survey has undershot job growth before. In the late 1990s, as unauthorized immigration into the country rose, a big gap developed between the establishment-survey and household-survey estimates for job growth. After the 2000 census captured the immigration increase, the Labor Department concluded that household-survey employment was understated by about 1.6 million people for January of that year.

Katharine Abraham, a University of Maryland economist who was the commissioner at the Bureau of Labor Statistics for much of the 1990s, cautions that today’s gap might reflect more than a discrepancy in population measures. Her research has found that people don’t always accurately report their employment in the household survey: In a strong labor market, for example, retirees might pick up part-time work but not consider themselves “employed." She and her co-authors have found the establishment survey tends to show stronger job growth when the labor market is strong, and more pronounced declines when it weakens.

UBS economist Jonathan Pingle thinks the census immigration estimates are too low. But he also thinks that the CBO’s could be too high and that the establishment survey might be overstating job growth.

Some supporting data, such as remittances from border states, don’t entirely square with the immigration story. It also bothers him that the household employment figures haven’t just shown slowing job growth in recent months, but outright deterioration.

“Even after going through everything, I’m still left with this conundrum," he said.

Write to Justin Lahart at Justin.Lahart@wsj.com

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