ADP Workforce Vitality Report Methodology

November 05, 2014

ADP in collaboration with Moody’s Analytics has developed a comprehensive ADP Workforce Vitality Report using ADP’s large anonymous and aggregated payroll data set to provide insights on labor market dynamics using various dimensions and also to provide a benchmark to measure human capital management for individual firms. The report is derived from approximately 330,000 companies and 24 million employees, which accounts for more than 20 percent of all U.S. private sector employees.

This report introduces a new index, called the ADP Workforce Vitality Index (WVI),which represents total real wages paid to the U.S. private sector. It links both the employees and firms through individual worker’s utility maximization and firm’s profit maximization.

Most existing labor market indices are constructed at the national level. The few indices that do provide more details measure are either the overall performance for major metro areas, or selected aspects of a local economy. No existing indices assess the labor market performance at such a diversified and detailed level as does this report. Because the industrial, geographic and demographic characteristics of a specific labor market can look quite different from the national trend, understanding and evaluating the labor market dynamics of a finely defined category will benefit job seekers and employers who operate in a specific labor market. Specific indices will enable human resource managers to appropriately adjust their policies in response to the changing market conditions.

The WVI distinguishes four types of workers in the labor market: those who stay with the same firm (job holders), those who change jobs (job switchers), those who are newly hired by a firm (entrants), and those who left the firm either voluntarily or involuntarily (leavers). Such a distinction is meant to better capture labor market dynamics.

The WVI model is designed to calculate the quarterly changes. It has following components: turnover rate, change in real hourly wage for job switchers, change in real hourly wage for job holders, change in quarterly hours worked for job holders, total employment growth, change in real hourly wage between new hires and leavers.

The WVI index is constructed by various dimensions: region, industry, firm size, age, gender, full/part time status, income and tenure.

The model ensures both horizontal consistency, i.e., consistency between WVI and its components, and vertical consistency, i.e., consistency across various dimensions by rigorous mathematical derivation and a bottom-up approach.

The data is aligned with the Bureau of Labor Statistics sample, the Quarterly Census of Employment and Wages (QCEW) data.

As most wage and employment variables exhibit seasonality, seasonal adjustments are performed by smoothing out the cyclical fluctuation. Quarterly dummies were used to control for cyclicality.

About the Report: The ADP Workforce Vitality Index is a comprehensive, quarterly measure of U.S. workforce dynamics that looks at key labor market indicators, such as employment growth, job turnover, wage growth and hours worked. This report yields deeper insights into workforce dynamics and trends than previously available.

Report Methodology
Calendar of Report Releases

For media inquiries about the ADP Workforce Vitality Report, please call 201-400-4583 or email Allyce Hackmann.