The Ups and Downs of Small Business Employment: Big Data on Payroll Growth and Volatility
JPMorgan Chase & Co. Institute, January 2017
36 Pages Posted: 18 May 2017
Date Written: January 18, 2017
In Making Payroll: Big Data on Small Business Payroll Growth and Volatility, we provide a new look at the employment challenges small businesses continue to face through the lens of payroll, growth, and volatility in this critical sector. Leveraging data from over 45,000 anonymized Chase small business customers that had electronic payroll outflows for each of the nine non-holiday months of 2015, we provide a granular view of payroll growth and volatility and their impact on employment at the individual business level. First, we find that payroll for most small employer businesses grew by less than the equivalent of one full-time employee in a calendar year, with median annualized payroll growth of 8.5 percent. Second, payroll expenses were a material outflow for employer small businesses, which held fewer cash buffer days than nonemployer small businesses. Third, most small employer businesses experienced unstable payroll and employment volatility including job gains and losses and other spikes and dips in payroll. Fourth, the typical small employer business experienced substantial volatility in payroll outflows, and volatility was highest for younger small employer businesses. Fifth, small employer businesses with more volatile payroll patterns tended to have fewer cash buffer days. These findings suggest that those who seek to help small businesses should focus not only on new business creation but specifically on minimizing payroll volatility, which can benefit both small business owners and employees. Moreover, they shed light on trade-offs inherent in policies that improve wages of small business employees but impose costs on small business owners.
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