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ABS RESPONSE TO RECENT CONCERNS EXPRESSED ABOUT EMPLOYMENT ESTIMATES
Some commentators on economic and labour force issues have claimed that recent estimates of employment growth have been underestimated. They have indicated that this is due to the way that the ABS benchmarks the employment estimates to the population estimates. One article stated:
“On one estimate, once the figures are adjusted for the erroneous forecasts, at least 100,000 of the jobs supposedly created in 2010 in fact arrived in 2011.”
To ensure there is a clear understanding of the issue, this article describes ABS benchmarking process and how it impacts on the quality of labour force estimates.
The benchmark process
Using best practice approaches, the ABS labour force estimates are drawn from a representative sample of the Australian households. In order to achieve this representation, the labour force estimates are benchmarked to an independent series of population estimates.
In an ideal world, there would be high quality, contemporary population estimates available each month to use as benchmarks. However, two factors work against this:
These two factors mean that the population benchmarks underpinning the labour force estimates are potentially subject to revision. The extent to which these series might be revised is discussed in more detail below.
It could be argued that every time a new set of population estimates becomes available, then the labour force benchmarks and estimates should be revised. However, comprehensive benchmarking exercises are costly, and generally have only a marginal impact on movement and level estimates – any impacts are typically well within the 95 per cent confidence interval on the estimates. Because of this, ABS practice is not to frequently revise the benchmarks, and therefore the employment estimates derived from them.
There are two exceptions to this. First, every five years, following the rebase of the population estimates to the Census, all labour force benchmarks are revised and this causes revisions to labour force estimates through the time series back to the previous Census. Second, if there are otherwise highly significant revisions to the population estimates then the ABS will undertake a ‘one off’ rebenchmarking exercise for all affected benchmarks. It did this in the July 2010 issue of the monthly labour force estimates.
Because of the current interest in the potential extent of revision to employment estimates associated with revised population estimates, this article includes an analysis of what could be expected based on the current knowledge of Australia’s population estimates.
The underlying official population estimates
The most reliable estimate of the population is the Estimated Resident Population (ERP), which is published on a quarterly basis in the publication Australian Demographic Statistics (cat. No. 3101.0. ERP is an estimate obtained by adding to the estimated population at the beginning of each period the component of natural increase (births less deaths) and the component of net overseas migration (NOM). Estimates of the resident population are based on Census counts, to which are added the estimated Census net undercount and the number of Australian residents estimated to have been temporarily overseas at the time of the Census. Overseas visitors in Australia are excluded from this calculation.
When ERP is first published (as preliminary), it is subject to revision due to lags and accumulations in birth and death registrations and the use of modelled preliminary NOM estimates. The preliminary NOM estimates are replaced by final NOM data after six quarters. Preliminary ERP is revised every six months, in the March and September quarter publications, until its status is changed to ‘revised’ six quarters after initial publication (with the inclusion of final NOM data).
Preliminary NOM estimates are modelled using a propensity model – applying information on traveller behaviour from the previous year to the number of travellers in the current period, taking account of the category of travel, age, country of citizenship, state/territory of usual residence and expected duration of stay. The propensity model was improved from a ‘two-year ago’ propensity to a ‘one-year ago’ propensity in September quarter 2008.
At the time of the last rebenchmarking exercise in July 2010, the most recent preliminary estimate of ERP was for the December quarter 2009 at 22,155,400. This estimate is now revised at 22,131,200, a difference of 0.1%. The preliminary estimate for the March quarter 2010 was 22,271,900; the revised estimate for that quarter is 22,232,000, a difference of 0.2%. The revised ERP for subsequent quarters is not yet available.
The calculation of preliminary ERP combines information from a range of data sources to provide the most reliable estimate of the population at the time of publication. Revisions to ERP ensure that the subsequent improvements in the source data are reflected in the estimated population.
For more information on the underlying population estimates, please refer to the Explanatory Notes in Australian Demographic Statistics (cat. No. 3101.0).
Note: Due to the rebenchmarking exercise in July 2010, it can be expected that revisions prior to 2009 would be small.
It is the view of the ABS that the increased cost associated with performing more frequent revisions to labour force population benchmarks would be inefficient as any revisions would not significantly improve the quality of estimates; rather, the series would become ‘noisier’ from frequent revisions. The ABS would also encourage users to take a broader view of the estimates that are produced and not focus on a particular estimate as a guide to the performance of the labour market as a whole.
Benchmarking the labour force estimates to population estimates is a complex process that can impact on the quality of both level and movement estimates. The ABS seeks to work closely with users to ensure that they are well aware of the limitations of the population benchmarks underpinning the labour force estimates and any impacts that these have on statistics. The ABS is confident that its current methods are the best possible given the availability of information. While more frequent revisions to the labour force population benchmarks would be possible, this would be costly and most likely generate ‘noise’ in the time series that would be unhelpful to analysis. However, the ABS continuously reviews its methods to take account of changing circumstances and is keen to continue hearing the informed views of users so these can be taken into account.
For further information please contact Labour Force on Canberra (02) 6252 6525 or by email at firstname.lastname@example.org.
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