Using Big Data to Decode Private Sector Wage Growth

📝 Abstract

The U.S. labor market is dynamic and complex, and understanding wage data across different segments of the workforce is critical to providing policymakers and business leaders with actionable insights. There is no labor index that assesses the labor market performance at such a detailed level as the ADP Research Institute’s Workforce Vitality Report (WVR). Drawing on the actual, aggregated and anonymous payroll data of 24 million Americans paid by ADP, the WVR looks at key dynamics and market indicators including wage growth, hours worked and turnover rate. Unlike other data sets, the WVR calculates wage growth of individual workers on a quarter-to-quarter basis, avoiding the deviations caused by various workplace occurrences, like when new workers are hired and older ones retire. In this paper, Dr. Ahu Yildirmaz, head of the ADP Research Institute, drills down into wage growth by industry, age, gender and income level, as well as for both job holders and job switchers. Using WVR data, Ahu walks through those factors contributing to overall shifts in wage growth, the future of the labor market and what this data means for today’s U.S. workforce.

💡 Analysis

The U.S. labor market is dynamic and complex, and understanding wage data across different segments of the workforce is critical to providing policymakers and business leaders with actionable insights. There is no labor index that assesses the labor market performance at such a detailed level as the ADP Research Institute’s Workforce Vitality Report (WVR). Drawing on the actual, aggregated and anonymous payroll data of 24 million Americans paid by ADP, the WVR looks at key dynamics and market indicators including wage growth, hours worked and turnover rate. Unlike other data sets, the WVR calculates wage growth of individual workers on a quarter-to-quarter basis, avoiding the deviations caused by various workplace occurrences, like when new workers are hired and older ones retire. In this paper, Dr. Ahu Yildirmaz, head of the ADP Research Institute, drills down into wage growth by industry, age, gender and income level, as well as for both job holders and job switchers. Using WVR data, Ahu walks through those factors contributing to overall shifts in wage growth, the future of the labor market and what this data means for today’s U.S. workforce.

📄 Content

1 Using Big Data to Decode Private Sector Wage Growth

Dr. Ahu Yildirmaz ADP 1 ADP Blvd. Roseland, NJ, 07068 Ahu.Yildirmaz@ADP.com

ABSTRACT

The U.S. labor market is dynamic and complex, and understanding wage data across different segments of the workforce is critical to providing policymakers and business leaders with actionable insights. There is no labor index that assesses the labor market performance at such a detailed level as the ADP Research Institute’s Workforce Vitality Report (WVR). Drawing on the actual, aggregated and anonymous payroll data of 24 million Americans paid by ADP, the WVR looks at key dynamics and market indicators including wage growth, hours worked and turnover rate. Unlike other data sets, the WVR calculates wage growth of individual workers on a quarter-to- quarter basis, avoiding the deviations caused by various workplace occurrences, like when new workers are hired and older ones retire. In this paper, Dr. Ahu Yildirmaz, head of the ADP Research Institute, drills down into wage growth by industry, age, gender and income level, as well as for both job holders and job switchers. Using WVR data, Ahu walks through those factors contributing to overall shifts in wage growth, the future of the labor market and what this data means for today’s U.S. workforce.

1. INTRODUCTION
   With the constantly changing U.S. labor market and abundance of data in the market across different segments of the workforce, policymakers and business leaders look for a few specific indicators as measures of labor market strength. Each month, media, analysts and the business community look to a few reports, namely ADP’s National Employment Report and the BLS jobs report, as indicators of economic health.

As it stands, most existing labor market indices are constructed at the national level focusing on a few metrics. The few indices that do provide more details measure either the overall performance for major metro areas or selected aspects of a local economy. Up until 2014, there was no comprehensive index that measured labor market dynamics at the industry, macro and regional levels, no existing indices to assess the labor market performance in intricate detail and no benchmark to measure human capital management for individual firms. So in 2014, ADP Research Institute launched the Workforce Vitality Report (WVR) to provide a deeper look at the labor market and wage situation.

Industrial, geographic and demographic characteristics of a certain labor market segment can look quite different from the national trend, so we would previously have to compile several different reports and data sets to understand the driving forces of labor market dynamics a. With the WVR, job seekers and employers are able to see how finely defined categories compare to various national and regional averages. It also enables organizations to adjust their policies in response to the changing market conditions.
Among the labor market indicators, the most followed data relates to wage and employment. The WVR tracks these economic barometers in one report to show the overall vitality of the labor markets. 2.METHODOLOGY ADP provides payroll services for 24 million American private sector workers. This anonymous payroll data gives us insight into the workforce dynamics of one in six employees. We have two unique advantages in using this data. First, the data enables us to track the same firm and employee over time. Therefore, we distinguish different types of workers in the labor market: those who stay with the same firm (job holders) and those who change jobs (job switchers). Such a distinction enables us to measure how much a person or group grows their wages by switching, done so by computing the job switch rate and comparing pre and post job switch wages. Second, the ADP data provide employee and firm demographic variables, such as a firm’s industry and size and an employee’s age and gender. Human capital management (HCM) firms particularly find this useful because it gives them data vital to measuring their employees against various groups in the changing workplace.
One of the main differentiators is that ADP is able to track the wages of the same individual across time. Wage indicators available from other sources, including the BLS, calculate average wage growth based on a dynamic group of employees at the two ends of the time frame under consideration. ADP can follow the wages of a particular employee through time, rendering a much truer measurement of wage growth without dilution from constant flow of labor in and out of the market. Bloomberg Data for Good Exchange Conference. 25-Sep-2016, New York City, NY, USA.

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It tracks four other indicators in-depth:

Turnover or job Switching rate: The percentage of workers who successfully changed their jobs in consecutive quarters. In contrast to the separation and qui

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