ADP Research Institute®

ADP Workforce Vitality Index
4th Quarter 2017

ADP Workforce Vitality Report Shows Steady Wage Growth

The ADP Workforce Vitality Index, which represents the total wages paid to the US private sector workforce, is 116.8 in the fourth quarter of 2017 (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% year over year in the fourth quarter of 2017, up from 3.7% growth in the third quarter representing accelerated progress. Employment growth remains steady around 2%. Wage growth remains steady. Wage growth for workers who have remained with their companies varies little across industries over the past year with wages increasing by about 4 to 5%. Job holder wage growth has also not changed appreciably from the prior four quarters, with modest gains generally being made. Job holders in leisure/hospitality, information, and construction have enjoyed the strongest gains, and they have been the top performing industries for several quarters. Workers in leisure/hospitality, the lowest paid industry are benefiting from higher state and local minimum wages in a number of states combined with company policies that are elevating wages for the lowest paid workers. Job switching presents a more volatile picture. Switchers into goods producing industries (mining, construction, and manufacturing) have experienced weak wage growth across the board. Manufacturing is not a surprising story as employment growth has been weakening in the industry and so companies have less incentive to provide strong wage offers. Construction presents a more puzzling case as by all accounts construction labor is scarce, and so it would make sense that workers switching into construction would see promising wage gains. When looking only at full-time switching, there is a dramatic improvement in the outcome for workers switching into construction jobs. The 5% wage growth for these switchers is much more in line with anecdotal evidence of an extremely tight labor market for construction workers.


ADP Workforce Vitality Index

116.8 4.0%
Change from 4Q 2016

Index Indicators (Yearly growth)

Total Employment Growth 2.1%

Job Turnover Ratio 27.7%

Change in the Hours Worked 0.2%

Wage Growth for Workers Who Stayed in Jobs 4.3%

Wage Growth for Workers Who Changed Jobs 3.3%


SIZE
Small
< 50 Employees
125.1
Midsized
50-499 Employees
113.8
Large
500-999 Employees
115.0
Enterprise
1000+ Employees
115.5

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REGIONS AND KEY STATES
Midwest
114.3
Illinois
110.4
Ohio
112.9
Michigan
115.2
Northeast
113.1
New Jersey
112.7
New York
113.8
Pennsylvania
108.2
South
117.7
Florida
123.5
Texas
118.4
West
120.8
California
120.4
Washington
129.4
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INDUSTRY
Construction
133.8
Manufacturing
109.9
Trade & Transportation
112.8
Finance
119.3

Professional Services
116.9
Education & Healthcare
119.3
Leisure & Hospitality
128.7
Information
112.5

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GENDER
Male
115.0
Female
119.7

AGE GROUP
16-24 Years Old
118.1
25-34 Years Old
118.1


35-54 Years Old
111.5
55+ Years Old
128.4


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FULL-TIME / PART-TIME
< 35 Hours
117.5
≥ 35 Hours
111.3

TENURE
1-3 Years
120.4
3-5 Years
141.1
5-10 Years
97.4
10+ Years
116.2




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Note: 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.



Workforce dynamics vary across regions. The West leads other regions in terms of wage growth of job holders, with year-over-year growth approaching 5%. Employment growth remains above average at 2.4% and job switchers are benefiting from an improving bump in pay. The Northeast is doing surprisingly well given its exposure to the weak economy in Europe. Wage growth of 4.2% for job holders has been stable for several years. The respectable pace may be due to the higher share of educated workers who are in high demand in the region’s knowledge based industries including education, finance, tech and professional services. The region’s weak demographics render it more difficult for employers to find suitable workers, driving wages higher for both holders and switchers. Employment growth is lagging behind the national average at only 1.5%, in part due to the increasing tightness in the labor market. Wage growth for job holders has been stable in the Midwest, but job switchers are faring less well and employment growth remains below average. The region has high exposure to the struggling global economy as well as high exposure to commodities. While oil prices have begun to rebound, crop prices have not. Yet, holder wage growth, at 4.3%, slightly outpaces that in the Northeast. Finally, the South, which has a high share of low-wage jobs and also high exposure to commodities, is experiencing the weakest wage growth for job holders. Fewer Southern states have implemented higher minimum wages in comparison to other regions. When minimum wages rise, the increases can cascade to other workers who earn more than the minimum wage workers. Similarly, at 2.8%, switchers in the South can expect a smaller raise than in most other parts of the country, in part due to a higher prevalence of part-time employment dragging down switcher wage growth as many workers seek more regular shifts and not necessarily higher wages. Employment growth remains strong, as the South continues to run neck and neck with the West to be the best performer.

"Although employment growth this quarter accelerated from 1.9 to 2.1 percent on an annual basis, wage growth was stagnant for both job holders and job switchers,” said Ahu Yildirmaz, co-head of the ADP Research Institute®. “However, there are two industries, information and professional services, where we see employers paying a premium to attract skilled workers. Additionally, with job switching at an all-time high and continuing to gradually increase we will be watching wages closely in 2018.”





ADP Workforce Vitality Report Shows Steady Wage Growth


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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For media inquiries about the ADP Workforce Vitality Index, please call (973) 868-1000 or email Michael Schneider.