Wednesday, November 30, 2011

The Importance of Small Business Hiring

The WSJ details the potential good news on the job front:

Private-sector jobs in the U.S. rose by 206,000, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.

Economists surveyed by Dow Jones Newswires expected ADP would report an increase of 130,000. The October data were revised to show a rise of 130,000 versus 110,000 reported earlier.
The chart below shows that the bounce has come almost entirely by small and medium sized businesses (i.e. those with payroll of less than 499 employees). I would note that hiring among companies with payroll of less than 50, saw the highest jump in hiring since November 2006. I personally wonder whether those that can't find jobs are creating their own or if there are opportunities out there that corporations aren't seeing as they have downsized and focused on reducing expenses.

Either way, this is part of a longer term trend in the job market. Corporate payroll now makes up less than 16% of overall payroll, according to ADP, down from almost 18.5% a decade ago. The issue of course is that small and medium size businesses haven't grown their share, but rather corporations have reduced their share through the outsourcing of jobs overseas.

Source: ADP


  1. More good news is coming via the JOLTS job openings data release which has been steadily trending up. While firings have stabilized some time ago, it was on the hirings side that the labor market was stalled. The ADP data as well as JOLTS seem to suggest that hirings are picking up as well - just what the doctor ordered for higher labor income and subsequent consumer spending to get the US economy out of the rut.

    ADS Analytics

  2. Doesn't the decrease in corporate payroll go against your earlier analysis of personal income and GDP. If corporate payroll is decreasing, how can increasing corporate profits be the main factor of decreasing personal incomes. Rather, isn't the shift from corporate jobs to small business jobs resulting in lower paying jobs? Also, a lot of the higher profits are coming from overseas, whereas, the U.S. earnings are flat for many multinationals. The job reports are good news, but there are still many negative factors, as shown in this dashboard:

  3. Graduated May, got a temp job June, just got hired full time at the same place this month :)

  4. Tim N- Decreased payroll is one of the reasons WHY corporate profits are higher. They are outsourcing higher paying US jobs overseas. The jobs are still there, just not in the US = higher profits.