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Employment Governance Transparency

November 2012 SEPH: Statistics Canada responds to ‘unclassified business’ jobs boom

Federal MP and Liberal labour critic Rodger Cuzner has seen fit to inquire of Chief Statistician Wayne Smith regarding the ‘unclassified business’ jobs boom. The following is the response his office received from Assistant Chief Statistician Peter Morrison. Suffice it to say Mr. Cuzner was not amused.

Apparently Statscan is aware of the issue. No indication is provided as to when the agency first became aware of it, why action hadn’t been taken sooner to address it nor what, if any, corrective action will be taken going forward. Nor is it explained why the issue was never mentioned in any of the SEPH Daily releases over the last 5 years.

To respond to Statscan’s equivocation:

Mr. Morrison is correct in stating that ‘unclassified businesses’ accounted for slightly less than 3% of all payroll employment in what he references as the most recent (September 2012) release. However, that is up from 0.6% in 2002, and 1% percent as recently as 2007. To put that  mere 2% increase in context, total payroll jobs since 2007 increased just 4.6%. Another way of looking at it is ‘unclassified business’ payrolls accounted for 40% of all net payroll job growth since 2007.

Table 1 SEPH Payroll Employment, total

Industry (NAICS)

Sep 2002

Sep 2007

Sep 2012

All, incl. unclassified

13336052

14733517

15418425

All, excl. unclassified

13261937

14583004

14991930

Unclassified businesses

74115

150513

426495

Unclassified share

0.6%

1.0%

2.8%

Table 2 SEPH Payroll Employment, net

Industry (NAICS)

2002 to 2012

2007 to 2012

All, incl. unclassified

2082373

684908

All, excl. unclassified

1729993

408926

Unclassified businesses

352380

275982

Unclassified share

16.9%

40.3%

Source: CANSIM Table 281-0023 Employment (SEPH), unadjusted for seasonal variation, by type of employee for selected industries classified using the North American Industry Classification System (NAICS) monthly (persons), Statistics Canada

With respect to Mr. Morrison’s reply, the gross payroll employment figure masks the impact of Statscan’s recent SEPH issue. The following charts look at the net change in payroll employment starting in 2002 and 2007, respectively. The first table shows an up-tick in net ‘unclassified’ payroll jobs starting in 2007. The second table appears to indicate ‘unclassified’ jobs “filled the gap” so to speak during the major labour market downturn spanning 2008 and 2011. Fake it ’til you make it?

SEPH Payroll Employment change (net),  2007-2012

In terms of Statscan’s process, Mr. Morrison’s reply is vague. A more detailed description of the SEPH methodology along with info on the Remittance form (PD7), Business Number (BN) application form and the Business Register (BR) questionnaire are available. Section A4 of the BN is fairly brief and specific in terms of identifying the nature of the business. The methodology document section titled ‘Conversion of BN level data’ indicates that industry information is ascertained from the BN, suggesting that some level of industry level aggregation is performed by CRA. Why/how Statistics Canada is unable to sort/classify the BN industry information to its BR, or rather why in recent years it has been unable to do so to such a remarkable degree, is a critical question.

As a result, not only are Canadians left to guess the nature of 40% of the jobs businesses supposedly created over those five years, but those same ‘unclassified business’ hours and payrolls are excluded from the published data. Any analysis of employee pay or hours worked during that period would effectively exclude a substantial proportion of the jobs ‘created’ during that same period. To be blunt, that would render such analysis meaningless.

Also not mentioned is that the eventual reclassification of those ‘unclassified’ jobs would skew the SEPH data in any future period during which an adjustment is made. Statscan would have to explicitly inform readers every time it reclassified jobs from ‘unclassified’ to a specific industry in a given month so readers don’t mistake reclassified jobs with those resulting from real economic activity. And we’re not talking a few jobs, but rather 350K more ‘unclassified’ jobs since 2002 (275K ‘created’ between September 2007 and 2012).

So why does this matter? Hopefully the figures above speak to the magnitude of the 2007-2012 SEPH problem. As has been noted a number of times over the years, including here, the Labour Force Survey is notoriously unreliable. The SEPH is considered the ‘real’ jobs report. In fact, it’s Canada’s only regular, national survey of employment as reported by employers. That it was this off should be a serious concern. That the problem appears to have emerged during the same period the country went through a prolonged labour market downturn should be of even greater concern. Jobs created during a downturn would be expected to provide lower pay, with lower labour market demand putting downward pressure on wages. A prolonged labour market downturn also tends to encourage self-employment (self-employed incorporated or temps on agency payrolls, for example), which provides lower earnings than corresponding regular, full-time employment during a recession. At the same time the country was going through this labour market downturn, the federal government inexplicably boosted the number of temporary foreign worker admissions, the TFWP further putting downward pressure on Canadian wages by design. What if any impact these political / economic issues had on payroll job creation and wage earnings may have been partially, if not entirely, masked as a result of so many jobs going ‘unclassified’ in the SEPH between 2007 and 2012.

Note to readers: The tabulations above differ slightly when replicated using the current dataset from the referenced CANSIM table. That’s because Statscan revised the September 2012 SEPH data. Specifically, ‘All, incl. unclassified’ was changed from 15,418,425 to 15,446,225, ‘All, excl. unclassified’ from 14,991,930 to 15,016,505 and ‘Unclassified businesses’  from 426,495 to 429,720. In finding an extra 28 thousand jobs, only 3 thousand of which were ‘unclassified’, Statscan reduced its 2007-2012 ‘Unclassified’ ratio from 40.3% to 39.2%. One could ask how 28 thousand jobs were originally missed in a single month, given the revision was to the seasonally unadjusted payroll employment data…

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