Limited Liability Corporation Formation

Definition: A business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself.
Definition: The LLC is not a corporation, but it offers many of benefits of a corporation. Many small business owners and entrepreneurs prefer LLC’s because they combine the limited liability protection of a corporation and the pass through taxation of a sole proprietorship or partnership. The downside to an LLC is that it does not offer the free transferability of ownership, perpetual existence, and the ability to be totally owned by a single individual that one gets with a corporation.

The payroll survey and the household survey of employment have increasingly varied in the last two years, with the household employment survey showing greater employment and the payroll survey showing no growth. Historically, the two surveys have mirrored each other. Many economists and businessmen have wondered at the difference, and one suggestion has been that the household survey is reporting jobs that do not get measured by the payroll employment survey, self employed and small businesses (such as many LLC's). The Bureau of Labor Statistics has looked at this situation and their analysis is in this PDF file.

In this report, the BLS looks at the data and produces a revised household employment survey number that approximates the payroll survey. Here is how they did it:

The household survey figures in Box 3 are calculated from a variation of household employment used in BLS research (also shown by the red lines in Charts 1 and 2). This version of household employment smoothes out the effects of sizable population control revisions to the survey in January 2003 and January 2004. In addition, it adjusts household survey employment to make it more similar in concept and definition to payroll employment. This adjustment to household survey employment subtracts from total employment agriculture and related employment, nonagricultural self employed, unpaid family and private household workers, and workers on unpaid leave from their jobs, and then adds nonagricultural wage and salary multiple jobholders.

I have bolded the relevant parts. Please note that the BLS seems to prove the theories of many, that the payroll employment survey has a bias that fails to accurately record an increase in employment. Job growth appears to be occurring, because the BLS must eliminate several categories of existing workers in order to achieve approximate parity between the two surveys. In fact, for the period of November 2001 through February 2004, the household employment survey shows 2, 121,000 more jobs created than the payroll employment survey.

Dr. Tim Kane took a long look at this issue and his work was published March 4, 2004. His conclusions are:

The payroll survey may be systematically undercounting job growth, creating an unprecedented job growth gap between its total employment measure and the household survey's. In the past six months, the BLS has approved new techniques to smooth the household survey's measure of total employment in order to make month-to-month comparisons. Analysts can now point with confidence to the employment of a record number of Americans as of January 2004 and the employment of an additional 2.2 million workers since the recession ended.

Why has the payroll survey missed so much recent job creation? The BLS is skeptical of the start-up explanation, and recent benchmarks confirm the BLS's position. Self-employment is a different matter, and the latest statement by the BLS commissioner confirms the appearance of a new class of contractors. The evolution of the workforce--specifically, the demographic emergence of consultants and contractors who do not consider themselves self-employed--is a likely wedge between the surveys. Self-employment has grown by over 600,000 in two years, and misidentification by the LLC and consulting workforce implies a much higher number.

Finally, a new hypothesis quantified in this report is that decelerating turnover is artificially deflating company payrolls, creating an illusion of 1 million jobs lost since 2001. The heightened insecurity since September 11, the Iraq war, and the specter of outsourcing are logical explanations for reduced turnover. Here again, innovative new data series on employment dynamics from the BLS allow economists to confirm this hypothesis.

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