Using Payroll Processor Microdata to Measure Aggregate Labor Market Activity

54 Pages Posted: 22 Jan 2018 Last revised: 29 Apr 2020

See all articles by Tomaz Cajner

Tomaz Cajner

Board of Governors of the Federal Reserve System

Leland Dod Crane

Board of Governors of the Federal Reserve System

Ryan Decker

Board of Governors of the Federal Reserve System

Adrian Hamins-Puertolas

Board of Governors of the Federal Reserve System

Christopher Johann Kurz

Board of Governors of the Federal Reserve System

Tyler Radler

Board of Governors of the Federal Reserve System

Date Written: 2018-01-17

Abstract

We show that high-frequency private payroll microdata can help forecast labor market conditions. Payroll employment is perhaps the most reliable real-time indicator of the business cycle and is therefore closely followed by policymakers, academia, and financial markets. Government statistical agencies have long served as the primary suppliers of information on the labor market and will continue to do so for the foreseeable future. That said, sources of “big data� are becoming increasingly available through collaborations with private businesses engaged in commercial activities that record economic activity on a granular, frequent, and timely basis. One such data source is generated by the firm ADP, which processes payrolls for about one fifth of the U.S. private sector workforce. We evaluate the efficacy of these data to create new statistics that complement existing measures. In particular, we develop a set of weekly aggregate employment indexes from 2000 to 2017, which allows us to measure employment at a higher frequency than is currently possible. The extensive coverage of the ADP data—similar in terms of private employment to the BLS CES sample—implies potentially high information value of these data, and our results confirm this conjecture. Indeed, the timeliness and frequency of the ADP payroll microdata substantially improves forecast accuracy for both current-month employment and revisions to the BLS CES data.

Keywords: Consumption, saving, production, employment, and investment, Labor supply and demand, Forecasting

JEL Classification: J2, J11, C53, C55, C81

Suggested Citation

Cajner, Tomaz and Crane, Leland Dod and Decker, Ryan and Hamins-Puertolas, Adrian and Kurz, Christopher Johann and Radler, Tyler, Using Payroll Processor Microdata to Measure Aggregate Labor Market Activity (2018-01-17). FEDS Working Paper No. 2018-005, Available at SSRN: https://ssrn.com/abstract=3106216 or http://dx.doi.org/10.17016/FEDS.2018.005

Tomaz Cajner (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Leland Dod Crane

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ryan Decker

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Adrian Hamins-Puertolas

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Christopher Johann Kurz

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551

Tyler Radler

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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