State of the Labor Market Summit 2018

ADP Research Institute®

State of the Labor Market Summit 2018

State of the Labor Market Summit 2018

The ADP Research Institute convened the best and brightest global minds in the field of labor economics to discuss the state of the U.S. labor market on June 11, 2018. This is the second annual forum where these research findings, overall trends in the labor market, and their impact on the U.S. economy were shared and discussed.

Here is a summary of the research that was discussed at the summit:

Employing ADP Worker-firm Data to Improve the Measurement of Wages

Leland Crane, Christopher Kurz and Daniel Villar | The Federal Reserve, Washington D.C.

The current set of employment cost measures either do not include benefits or are not very timely. In particular, the monthly measures of compensation include only wages, and do not include any information on benefits—a substantial portion of employment costs. Conversely, the two compensation costs measures that do include benefits are released quarterly with a lag. In particular, compensation per hour (CPH) and the Employment Cost Index are published a month after the end of the quarter. Furthermore, the CPH measure undergoes substantial revisions after being released and, as a result, is of limited use until roughly half a year after the time period that it is intended to measure. We use earnings and benefit measures in the ADP payroll microdata to create timely alternative measures of labor compensation. This paper describes the construction of alternative compensation measures and provides preliminary evidence of the value of such measures.


Rent Sharing within Firms

David Cho and Alan Krueger | Princeton University

This paper estimates the degree to which rent sharing occurs among different types of workers within the same firms. In a landmark study, Bertrand and Mullainathan (2001) found that executive compensation is positively correlated with ex post observable forms of luck, and that this relationship appears to be particularly strong at companies that have relatively weak forms of corporate governance. Using micro data from ADP and profit shocks due to commodity prices and minimum wage hikes, we will analyze the degree to which rents are shared across workers in different wage categories within firms, and across firms.


The Drivers of the Accelerated Wage Growth

Sinem Buber-Singh, Mita Goldar and Ahu Yildirmaz | ADP Research Institute
Mark Zandi | Moody's Analytics

Using ADP’s rich sample data, the enhanced Workforce Vitality Report (WVR) produces estimates of wages and wage growth at levels of detail not available from other sources. Overall wage growth as estimated from ADP’s WVR is in line with published estimates from Bureau of Labor Statistics (BLS) and the acceleration in wage growth over the past year is consistent with an increasingly tight labor market. One of the many benefits of the WVR is the ability to look at wage gains by worker type, which can be a more informative measure due to the elimination of the compositional impacts of a changing labor force. For example, workers who have been in the same job for at least a year are realizing strong wage increases as employers place a renewed focus on retaining their current workforce as it becomes increasingly difficult to find qualified workers.


Wage Rigidity, Employee Tenure, and the Business Cycle

Dante DeAntonio, Adam Ozimek and Mark Zandi | Moody’s Analytics

We study the impact of tenure on wage rigidity and potential changes to that relationship throughout the course of the business cycle. We then look at firm-level measures of average tenure at the start of the Great Recession to determine whether it impacted overall nominal wage rigidity and layoffs at the firm level during the course of the recession and recovery. If so, does having a long-tenured workforce create a greater risk of firm job loss during a recession?


State and Time Dependence in Wage Dynamics: New Evidence from Administrative Payroll Data

John Grigsby and Erik Hurst | University of Chicago
Ahu Yildirmaz | ADP Research Institute

Using administrative payroll data from the largest U.S. payroll processing company, we document a series of new facts about the extent of nominal wage rigidity in the U.S. First, we document that nominal wage cuts are exceedingly rare. Over the pooled 2008-2016 period, only 2% of workers who remain in a continuous employment relationship receive a nominal wage cut during a given year. Second, nominal wages are much more flexible (both up and down) for job changers. Third, the extent of wage rigidity is state dependent. Nominal wage adjustments are lower during recessions, in regions that suffered larger house price declines, and for firms that shed large amounts of workers. Moreover, nominal wage cuts are substantially higher during recessions. During the Great Recession, nearly 8 percent of salaried workers received a nominal wage cut. Finally, we document that wage changes within a firm vary substantially in response to firm level shocks. Those at the top of the wage distribution have nominal wages that respond more to firm level shocks. While some of the qualitative patterns have been documented in the prior literature, the exact quantitative magnitudes we document differ markedly. We end by discussing how measurement error in household level data and missing measures of hours in firm level data substantially bias existing measures of nominal wage rigidity.

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