ADP is a company that prepares payrolls for about 22 million employees in a half-million U.S. firms.
This represents an enormous database of employment information that is both timely and already computerized in a standardized format.
ADP has been working with a firm, Macroeconomic Advisers, LLC, to find a way to analyze this data to provide some insight into the employment picture in the U.S. economy.
The result is employment data that can be integrated with the federal government’s monthly numbers from the Bureau of Labor Statistics – and yet have the advantage of being real data, as opposed to just a survey.
As economists and market watchers know, there has been a running battle of the numbers between the two primary sources of federal government’s employment data: the Census Bureau household survey and the employer survey of the labor agency. In any given month they not only routinely yield different numbers but also sometimes move in opposite directions. This leaves us in the embarrassing position of not knowing, for sure, whether employment is going up or down.
The latest data, from the ADP National Employment Report released on April 4, indicates that private nonfarm employment grew by 106,000 in March. That total is the net result of an increase of 128,000 jobs in the service sector and a decline of 22,000 in the goods-producing sector.
The ADP data highlights what continues to be an important trend in the U.S. economy. When we look at the analysis of the employment numbers, it turns out that small businesses (1-49 workers) and medium-sized businesses (50-499) provided all the job growth, while large businesses contributed the job losses. In fact, it was the small businesses with fewer than 50 workers that provided 81,000 of the total jobs gained in March.
Our economy has been undergoing a fundamental change and it is fair to say that we do not understand all of its consequences. Technically, the best way to describe it is that our economy is being downsized in the sense that the driving force for employment is coming from small businesses, not the huge corporations that get all the attention. Unfortunately, that word already has another, unpleasant, meaning, so we don’t have a single, catchy word to describe the change that is taking place.
What we do know is that the relationship between small businesses and large ones is not an either/or situation. Many small businesses have large corporations as customers, and some, in fact, deal exclusively with large corporations.
Big companies, on the other hand, are often dependent on small businesses to supply them with what they need. The Boeing Co., for example, years ago had more than 14,000 active suppliers. All but a few were small businesses. (That 14,000 is far too large a number to manage efficiently, of course, and Boeing has systematically cut that number way back.)
Small businesses have become not just suppliers of goods and services to big corporations but also technology. Many, if not most, of the technological developments in today’s economy are coming from small firms which then supply them to large corporations which are in a better position to make use of them.
It is not at all unusual for a large corporation to acquire a new technology by acquiring the small company that developed it. But we are also seeing an increase in joint-ventures, leases and other methods of open-market technology transfer.
Economic policy makers are only gradually coming to realize the significance of these small business employment and technology patterns that now dominate our economy. Legislators still seem to see businesses as being all the same; all big corporations. Consequently, in today’s legal and regulatory environment it is, in many respects, harder to run a small company than a big one. When it comes to small business policies the Congress epitomizes Mark Twain’s attitude: “You know I’m all for progress. It’s change I object to.”
The natural inertia of government is abetted by a political characteristic of small businesses. Unlike individuals, small businesses don’t get to vote. Also, unlike big corporations which are a very visible presence in our nation’s capital, small businesses aren’t able to exert much clout. For all their power to affect the economy, small businesses are what physicists would call a “weak force” in the atomic structure of our government in Washington, D.C.
The new employment reports from ADP are a reminder of how important small businesses are to our economic prosperity. The reports have been well received on Wall Street and have grabbed the attention of analysts and investors. The problem now is to get Congress to wake up and realize that things have changed.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.
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