ADP Workforce Vitality Index
4th Quarter 2016
ADP Workforce Vitality Report Shows Modest Acceleration in Wages
The ADP Workforce Vitality Index, which represents the total wages paid to the US private sector workforce, is 112.4 in the fourth quarter of 2016 (3Q2013=100, Not Seasonally Adjusted). The Index is driven by a number of metrics including job holders’ wages, job holders’ hours worked, job switchers’ wages, and total employment. The Index grew by 4.0% from the previous year.
The U.S. labor market has continued to improve in the fourth quarter at a steady pace but job growth has slowed somewhat in the last few months of 2016 as the labor market has tightened and as low energy and commodity prices and a challenging global environment weigh on goods producing industries.
The positive trend in wage growth over the past few quarters suggests that wages may finally reflect the tightening labor market. Employers are hard pressed to find workers and they are keen on retaining their experienced workers. Thus, they are more willing to provide more generous raises to their workers than they were in previous years.
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The ADP Workforce Vitality Index analyzes aggregated and anonymous employee-level data. The findings are based on actual data derived from about 340,000 U.S. companies and approximately 22 million private-sector U.S. workers. The privacy and security of the data is safeguarded by multiple layers of protection and no confidential client data is used in the ADP Workforce Vitality Index. The aggregated and anonymous data used in the report means that no information on individual ADP clients or their employees can be identified.
The Workforce Vitality Index, which represents the total wage bill of U.S. private-sector workers, grew by 4.0% year over year, up from 3.6% during the prior four quarters. The fourth quarter gain was driven by growth in wages and employment.
Isolating only full-time workers shows a much stronger wage growth for job switchers early in the expansion, while growth for holders has remained fairly steady. In recent quarters, however, the increase for switchers has cooled slightly. The gap between job holder and switcher wage growth has narrowed in recent quarters likely as the result of employers increased focus on retaining their best performers instead of searching for new workers.
The youngest job holders, younger than 25 years of age, saw their wages rise by a very strong 8.6% in the four quarters ending with the fourth quarter, and their wages have decelerated in each of the last two quarters. Switchers were able to negotiate a 6.5% gain; however, their wages are considerably lower than those of older cohorts. It is more likely that younger workers hold low paying part-time jobs than do older workers. Within the youngest cohort of workers 53% held part-time jobs. This compared with 18% for prime-age workers. However, the share of young workers with part-time jobs has declined slightly from 55% during the past two years. It has not changed for workers prime-age workers.
Job holders ages 25 to 34 earned 6.8% more than last year, and those who changed jobs were able to get a 6.0% bump up. Labor market dynamics slow for older workers: prime-age workers’ wages grew by a more modest 4.0% and who switched jobs were able to increase their earnings by 2.1%.
Unfortunately, once workers have passed the 55 year mark, there was no wage growth and the possibility of bettering one’s lot by changing jobs also diminished. Job switchers who switched between fulltime jobs lowered their wages by -1.5%. However, job switching falls off considerably for older workers.
“Employees in the leisure and hospitality sector continued to experience significant wage increases in the fourth quarter of 2016 for both job holders and job switchers,” said Ahu Yildirmaz, co-head of the ADP Research Institute®. “The leisure and hospitality industry was also in the top three industries for employment growth at 2.6 percent.”
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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.
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