Sep

6

There is an issue about the employment numbers that may not be getting proper attention - Section 530 and its interaction with state unemployment benefits. Section 530 of the Revenue Act of 1978 was the Carter Administration's gift to the farm belt. Under Section 530 an individual will not be classified as an employee if the alleged employer has a reasonable basis for treating that person as an independent contractor. "Reasonable basis" can be proved by:

(1) "Judicial precedent, published rulings, or technical advice with respect to the taxpayer, or a letter ruling to the taxpayer; (2) "A past IRS audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual"; or (3) "Long-standing recognized practice of a significant segment of the industry in which the individual was engaged."

The IRS has a "whistle-blower" form that individuals can file to challenge their classification - the SS-8. But - and here is the kicker - on the form itself the IRS warns the taxpayer that "A Form SS-8 should not be filed for supplemental wage issues." What this means, in real terms, is that people who get "fired" from their independent contractor jobs cannot use the IRS to bully state unemployment agencies into paying them benefits.

Since the states all have incentives to cut down on the cash drain from unemployment benefits, even the deep blue ones like California do not make much effort to reclassify contractors as employees once the issue gets to unemployment benefits. the result is that "the workforce" has more and more people in it who are not now and never will be classified as "employees". "Employment" itself becomes less and less of an indicator of actual incomes because the payroll numbers cannot reflect the contractors' fortunes (both good and bad).

Bill Rafter writes: 

For the "percent unemployed" number, reclassification as to who is or is not an employee may have an impact.  However this is the beauty of simply looking at the payroll tax data, as all persons (traditional employees and individual contractors) are required to pay.

Victor Niederhoffer writes: 

But with all the seasonal adjustments and other things that enter the employment numbers, how can payroll numbers not using the census seasonal adjustments be meaningfully compared. 

Bill Rafter elaborates:

It is the seasonal adjustments by the officials that we distrust. We think the adjustments are a fudge factor to be used by an administration eager to paint a picture. I don't know who is responsible (BLS or Census), but their adjustments historically have made little sense. BTW, the Fed also could use someone better at seasonal adjustment, although their number jockeys are better than whoever plays with the payroll data.

A problem is (a) do you want the truth, or (b) do you want to make money? If you are decent at it, doing your own work will get you the truth. However if the world follows the official releases as gospel, you could be right and broke. I have been in that predicament a few times.


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1 Comment so far

  1. Craig Bowles on September 8, 2013 8:03 am

    When you compare employment from entry into the previous recession, growth rates are normally close to 3% at this point and stay above 2% through 2015. Our 1.8% is similar to both the late 1970s and late 2000s. Following the late 1970s weakens sharply in the first half of 2014 and bounces back in the second half before second half problems in 2015. That was the double-dip scenario in 1980-1982. 2010-2012 had much weaker growth rates than the 1970s, so our recent past was much more like the 2000s. So maybe we continue to follow that more recent recovery which rolled over after what is 2013 and had a slower and more steady decline into what would be 2016. In either case, we’re six years after entry into a global recession and history suggests downside risk increases.

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