Intuit Small Business Employment Index. White Paper

Transcription

1 Intuit Small Business Employment Index White Paper October Intuit Small Business Employment Index White Paper

2 Contents ABOUT THE INDEX... 3 BACKGROUND... 4 WHAT THE INDEX MEASURES... 4 METHODOLOGY... 5 ABOUT THE ECONOMIST Intuit Small Business Employment Index White Paper

3 ABOUT THE INDEX The Intuit Small Business Employment Index is a measure of employment for firms with 1-19 employees, derived from aggregate and anonymous online employment data for approximately 170,000 small business employers that use Intuit Online Payroll. Intuit reports data for three categories: small business employment, compensation, and hours worked. The Index also includes employment data broken down by geography. The Index was developed to help fill a critical gap in the reporting of economic data about small business employment. The Bureau of Labor Statistics (BLS) reports aggregate employment data gathered from the household and establishment surveys each month in its National Employment Situation Report. This report does not break out specific small business employment data. BLS does report, via its Business Employment Dynamics (BED) program, 1 employment counts by firm size class that are gathered from State unemployment insurance records, but it reports them with a long lag. The goal of the Intuit Index is to provide an earlier estimate of employment for firms with 1-19 employees that is a forecast of what BED will report. Data from Intuit s own payroll customers are an important input to the Index. This data is read directly from Intuit Online Payroll records, and does not depend on someone transcribing payroll data onto a survey form. An added advantage of the Intuit Small Business Employment Index data is that because the payroll records are generated on line, the data is available in nearly real time,, and it is free of transcription or survey errors. Index Publication Schedule Generally, the Intuit Small Business Employment Index will be released at the beginning of each month, reporting on the employment trends of the prior month, prior to the Employment Situation release from BLS. Each release will represent a full month of data, from the 24 th of the previous calendar month to the 23 rd of the current calendar month. This data will be extracted on the 24 th of the current calendar month. 1 See 3 Intuit Small Business Employment Index White Paper

4 BACKGROUND According to the Bureau of Labor Statistics, businesses with fewer than 20 employees continue to be the largest set of employers in the United States. As of the first quarter of 2011, there were 4.2 million employers with fewer than 20 employees and they are 87 percent of all U.S. private employers. They employ approximately 19.4 million people, about 18 percent of all private sector employment in the U.S. It s therefore clear that these smallest of small businesses have a large impact on the economy. However, there is still a critical gap in the timely reporting of economic data about small business employment: the BLS Business Employment Dynamics data that breaks out employment by firm size class is reported only annually, seven months after the first quarter of each year on the current schedule. Thus, when data is released each November, the figures are seven months old (the previous March), and by the time new figures are available the next November, the previous year s figures are 19 months old. To fill the gap in a lack of timely small business employment reporting, Intuit created the Small Business Employment Index. It is designed to provide statistically-sound forecast of small business employment and other facts about small business as well. WHAT THE INDEX MEASURES The Intuit Small Business Employment Index is a set of three related measures, all tracking changes in national small business employment. Each is seasonally adjusted and is based on a set of approximately 170,000 small businesses. The Small Business Employment Index is the flagship index, as it provides a top-level view of change in employment at small businesses. The other two measures shed light on other aspects of small business employment: hours worked and monthly total compensation per employee. Together, they give a rich view of small business employment activity on a monthly basis. Small Business Employment Index represents the monthly level of employment in small businesses. Small Business Employee Hours Worked represents the level in monthly hours worked per employee (utilization) in small businesses. Small Business Employee Compensation represents the monthly levels of compensation per employee in small business. 4 Intuit Small Business Employment Index White Paper

5 METHODOLOGY Small Business Employment Index The Employment Index data is constructed as a monthly estimate of private, nonfarm employment for firms with 1-19 employees. Data from businesses that use Intuit s payroll service are used to calculate changes in employment using a same-stores method. Each month, we compute the percentage change in 1-19 employment from one month to the next using exactly the same set of businesses ( same-stores ). The set of businesses changes each month, so the measurement is the change, for each pair of months, for businesses who are present in both the earlier and the later month. We use the same dynamic sizing approach that BLS uses to account for businesses that move into or out of the 1-19 size class from one month to the next. Under this approach, for a business that grows from 10 to 25 employees, of the 15-employee increase, 9 are allocated to the 1-19 size class and the remaining 6 to the next higher size class. We build a regression model of small business employment that relates each month s level of small business (1-19) employment to the most recently available levels of total payroll employment, private payroll employment, construction payroll employment, self-employment, and the Intuit same-store index, as well as various lagged values of these variables. The dependent variable in this regression is quarterly data obtained by special request from BLS and is similar to the annual data by firm size published at The payroll data come from the BLS establishment survey, and the self-employment data come from the BLS household survey. We use this model to forecast current small business employment. The resulting estimates are seasonally adjusted using X-12 ARIMA (auto-regressive integrated moving average), software developed and maintained by the U.S. Census. The Intuit data for employment exhibits strong seasonal effects very similar to those seen in non-farm national employment data. Particularly, there is a sharp drop in employment each January (roughly 2 percent), rising employment through the spring, and another drop, though not quite as sharp, in late summer. In addition, we also estimate small business employment by U.S. Census Divisions and for individual states in which there are more than 1,000 businesses in the Intuit payroll data. Since the BED employment counts for the 1-19 firm size class are not available by state or division, we cannot use the above approach to forecast those counts. Instead, we run a single modified regression that relates U.S. small business employment changes not levels to total employment changes and changes in the Intuit samestore index. We then assume that the same relationship applies at the state and division level. Using the estimated coefficients and state- and division-specific versions of the 5 Intuit Small Business Employment Index White Paper

6 predictors, we can obtain estimates of changes in small business employment for each state and division. Small Business Employee Hours Worked For the hours per employee series, we divide total monthly hours for hourly employees by the total number of such employees and report the seasonally-adjusted trend. This series has a clear relation to the economy overall. Small Business Employee Hours Compensation For monthly compensation per employee, we divide the total compensation for all employees, including the business owners themselves, by the number of employees, and report the seasonally-adjusted trend. The result is not adjusted for inflation. Again, this series has a clear relation to overall economic activity. ABOUT THE ECONOMIST The Intuit Small Business Employment Index has been constructed from Intuit payroll data by nationally-recognized financial economist, Susan Woodward. Susan Woodward is the founder of Sand Hill Econometrics, which publishes the Sand Hill Index, an index of value for venture-capital-funded companies. She has licensed this index to Dow Jones, which began publishing it as the Dow Jones Index of Venture Capital in the fall of Sand Hill Econometrics also provides measurement of risk and performance for alternative assets to institutional investors. Woodward has a Ph.D. in Financial Economics from UCLA. She taught finance for the first ten years of her career. She then served 10 years ( ) in the government in Washington D.C., including four years as chief economist at U.S. Department of Housing and Urban Development, and four years as chief economist at the U.S. Securities and Exchange Commission. She now lives in Menlo Park, California, and works on issues in both mortgage lending and securities. For more information, please contact: Contacts: Tammy Lam Vanessa Piccinini Intuit Inc. Access Communications index@intuit.com vpiccinini@accesspr.com 6 Intuit Small Business Employment Index White Paper

7 Intuit Small Business Payroll Index Terms of Use: You have permission to use the Intuit Small Business Payroll Index ( Index ) but may not resell or modify it. You may link to, reference, and quote portions of the Index provided that: a) You include an attribution notice back to Intuit Inc. Small Business Index Intuit Inc. All rights reserved. b) You do not make any modifications to the portions you use. c) You do not remove any copyright notices from the Index. d) Your use may not directly or indirectly state or imply sponsorship, affiliation, or endorsement by/with Intuit. These Terms of Use supplement the Small Business Website Terms of Service here: Intuit Inc. All rights reserved. 7 Intuit Small Business Employment Index White Paper