Payroll employment

What Is Payroll Employment?

Payroll employment refers to the total number of paid employees working in non-agricultural establishments across the U.S. economy, as reported by businesses and government agencies. This key concept falls under the umbrella of Macroeconomics, providing a critical snapshot of labor market health. It measures the number of jobs, not individuals, meaning a person holding two jobs would be counted twice. The data for payroll employment is primarily collected and disseminated monthly by the Bureau of Labor Statistics (BLS) through its Current Employment Statistics (CES) program. These figures are crucial for understanding economic growth and are widely followed by analysts, policymakers, and investors as a leading economic indicator.

History and Origin

The collection of employment and payroll data by the U.S. government dates back over a century. In October 1915, the Bureau of Labor Statistics (BLS) first began gathering such data for a select few manufacturing industries, primarily focusing on month-to-month changes in employment and payroll.²⁵ This initial effort marked the foundational step toward the comprehensive payroll employment statistics we have today. The BLS itself has a longer history, being established in 1884 to collect information about employment and labor, and later becoming part of the U.S. Department of Labor in 1913.²⁴,²³ Over decades, the scope and detail of the data collection expanded significantly, especially after the Great Depression, which underscored the need for robust economic data on the labor force.²² By 1950, the BLS had reconstructed continuous time series for total nonfarm employment back to 1919, providing a consistent historical record.²¹

Key Takeaways

• Payroll employment measures the number of non-agricultural jobs in the U.S., serving as a vital indicator of the labor market and overall economic health.
• Data is collected monthly by the Bureau of Labor Statistics (BLS) via the Current Employment Statistics (CES) program from businesses and government agencies.
• The figure excludes farmworkers, private household employees, self-employed individuals, and active military personnel due to collection methodology and seasonal factors.
• Significant changes in payroll employment can influence financial markets, investor sentiment, and policymaking, particularly regarding monetary policy by the Federal Reserve.
• Revisions to preliminary payroll employment figures are common, reflecting the ongoing collection and refinement of data.

Formula and Calculation

Payroll employment is not calculated using a formula in the traditional sense, but rather it is a direct summation derived from a large-scale survey. The Bureau of Labor Statistics (BLS) conducts the Current Employment Statistics (CES) survey, also known as the establishment survey, by collecting data monthly from approximately 121,000 businesses and government agencies, representing about 631,000 individual worksites.²⁰ These establishments provide information on the number of employees on their payrolls for the pay period including the 12th of the month. The BLS then aggregates this raw data and applies various adjustments, including seasonal adjustments, to produce the widely reported payroll employment figures.¹⁹

Interpreting the Payroll Employment

Interpreting payroll employment figures involves understanding what the numbers signify for the broader economy. A consistent increase in payroll employment generally indicates a strengthening economy, as businesses are hiring more workers to meet demand, which can lead to increased consumer spending and overall economic growth. Conversely, a decline suggests a weakening economy or potential recession as companies reduce staff.

Economists and analysts pay close attention not only to the headline number (the net change in jobs) but also to revisions of previous months' data. Significant downward revisions can signal underlying weakness that wasn't immediately apparent.¹⁸,¹⁷ Sectoral breakdowns within the payroll employment report also offer insights into which industries are growing or contracting, providing a more nuanced view of economic trends. For instance, recent reports have shown consistent job growth in healthcare and social assistance, even as other sectors may see little change or declines.¹⁶ The "breakeven employment growth" concept, discussed by the Federal Reserve Bank of San Francisco, refers to the monthly job creation needed to keep the unemployment rate stable, accounting for growth in the labor force.¹⁵

Hypothetical Example

Imagine a country, "Prosperia," which is closely monitoring its economic health. In the most recent monthly report, the Prosperian Department of Labor announces that payroll employment increased by 150,000 jobs. This figure indicates that Prosperian businesses and government entities collectively added 150,000 positions to their payrolls in the previous month.

Breaking down the number, analysts observe that the manufacturing sector contributed 20,000 jobs, while the services sector added a substantial 100,000 jobs, reflecting strong consumer demand in areas like retail and hospitality. The remaining 30,000 jobs came from the public sector. This positive payroll employment data suggests that the Prosperian economy is expanding, with businesses confident enough to hire more workers. Such consistent job creation can lead to higher average incomes and potentially boost overall Gross Domestic Product.

Practical Applications

Payroll employment data has several practical applications across finance, economics, and public policy:

• Economic Analysis: It is a primary input for assessing the health and direction of the economy. Strong payroll employment figures indicate robust economic growth and often signal a tight labor market.¹⁴
• Monetary Policy Decisions: Central banks, such as the Federal Reserve, closely monitor payroll employment when making decisions about interest rates and other aspects of monetary policy. A strong job market with rising wages can contribute to inflation concerns, potentially leading to a more hawkish stance.¹³
• Investment Decisions: Investors analyze the payroll employment report to gauge market sentiment and anticipate future economic conditions. Positive reports can lead to increased stock market activity, while negative reports might cause market corrections.
• Government Planning: Policymakers use payroll employment data to inform decisions on fiscal policy, social programs, and infrastructure spending, aiming to foster job creation and economic stability.
• Academic Research: Economists and researchers use the extensive historical series of payroll employment data to study business cycles, labor market dynamics, and the effectiveness of economic interventions. The data, for instance, reflects significant impacts from major events, such as the massive job losses seen during the COVID-19 pandemic.¹²

Limitations and Criticisms

Despite its widespread use, payroll employment data has certain limitations and faces criticisms:

• Exclusions: The most significant limitation is its exclusion of several categories of workers. Payroll employment, often referred to as "nonfarm payrolls," specifically omits farm workers, self-employed individuals, private household employees, and unpaid volunteers. This means that a considerable portion of the total labor force is not captured, potentially providing an incomplete picture of overall employment. Agricultural employment, for example, is excluded due to its highly seasonal nature and the complexities of tracking informal or undocumented labor.¹¹
• Revisions: Initial payroll employment figures are preliminary and subject to significant revisions in subsequent months. These revisions can sometimes alter the perceived strength or weakness of the labor market considerably, leading to uncertainty.¹⁰,⁹ For instance, recent reports have seen substantial downward revisions to previously reported job gains.⁸
• Job Duplication: The payroll employment count measures jobs, not unique individuals. Someone holding multiple part-time positions would be counted for each job, potentially overstating the number of employed individuals in the economy.⁷
• Lagging Indicator Aspects: While often viewed as a leading indicator, certain aspects of payroll employment can lag economic turning points. Businesses may delay layoffs even as a downturn begins, or delay hiring after a recovery has started.
• Focus on Establishments: The data comes from an establishment survey, meaning it reflects what employers report. This can sometimes differ from household-level data, which surveys individuals directly. Some critics argue that the establishment survey may not fully capture the nuances of the labor market, especially regarding full-time versus part-time employment trends.⁶

Payroll Employment vs. Household Survey Employment

Payroll employment, derived from the Current Employment Statistics (CES) or establishment survey, measures the number of paid jobs. It is based on surveys sent to businesses and government agencies. This survey counts each job held, so an individual with two jobs is counted twice. It notably excludes farm workers, self-employed individuals, and private household employees.⁵

In contrast, Household Survey Employment (formally the Current Population Survey or CPS) surveys individuals directly in their homes. This survey focuses on the employment status of individuals, asking whether they are employed, unemployed, or out of the labor force. Thus, each person is counted only once, regardless of how many jobs they hold. The household survey is also the source of the official unemployment rate.⁴

The primary difference lies in what they measure: jobs (payroll employment) versus employed persons (household survey employment). While both provide valuable insights into the labor market, they can sometimes show discrepancies due to their differing methodologies and coverages, leading to varying interpretations of economic conditions.

FAQs

What is the source of payroll employment data?

The primary source of payroll employment data is the U.S. Bureau of Labor Statistics (BLS), which collects the information through its Current Employment Statistics (CES) program, also known as the establishment survey.³

How often is payroll employment data released?

Payroll employment data is released monthly by the BLS as part of the Employment Situation Report, often referred to as the "jobs report."

Why are farm workers excluded from payroll employment?

Farm workers are excluded from payroll employment data because agricultural employment is highly seasonal and subject to significant fluctuations, making consistent data collection challenging. Additionally, agricultural labor often involves self-employment, unpaid family workers, or undocumented workers, which are difficult to capture accurately through the establishment survey.²

Does payroll employment include government jobs?

Yes, payroll employment includes jobs in both the private sector and government agencies (federal, state, and local), but generally excludes certain specific government roles like active military personnel and some intelligence agency employees.

Why are initial payroll employment figures often revised?

Initial payroll employment figures are preliminary estimates based on the available survey responses at the time of release. The BLS continues to collect and process more complete data from surveyed establishments, leading to subsequent revisions that provide a more accurate picture of job creation.¹