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© Copyright 1997 by the Wyoming Department of Employment, Research & Planning

Last month, we looked at the importance of sales tax information concerning Wyoming's economy and the relationship to total payroll. This month, we look at total payroll as an important source of information and its relationship to employment as measured by the Current Employment Statistics (CES) program. CES and total payroll are useful in estimating the economic vitality of the state. Since the CES data are available sooner than any other employment data source, it can be used to provide an estimate of income, spending and therefore gross taxable sales used in state revenue projections. Treating CES estimates as a proxy for gross sales tax is useful to state and local governments in understanding the current revenue stream and making budgeting more predictable.

Total payroll is the single largest component of Gross State Product (GSP), and because CES estimates are associated with total payroll, CES estimates are a useful lead indicator of GSP and the performance of Wyoming's economy.

We know that total payroll and employment are related variables, and that as firms employ more individuals and individuals receive more income, total payroll will increase, as will taxable sales⁽¹⁾. As employment and total payroll rise, so does gross taxable sales (see Figure 1), and as total payroll and employment decrease, so do gross taxable sales. By using regression analysis, we can quantify this relationship. Regression analysis shows CES (and again the third quarter as a dummy variable) and the fourth quarter were statistically significant at the one percent level (t-statistic) and explains 93 percent of the variation in total payroll (see Table 1). The coefficients in Table 1 show the percent change in total payroll as a function of percent change in employment. For instance, a one percent increase in employment is associated with an increase in total payroll of 1.954 percent (or $24,105,474) from the third quarter of 1996 to the fourth quarter of 1996.

Five months after the quarter is over, total payroll data for all firms covered under unemployment insurance are available. However, CES is estimated three weeks after the month is over, and provides early estimates of gross taxable sales and GSP. Total payroll is traditionally higher during the second and fourth quarters, due to seasonal workers; that is why the coefficient for the third quarter is negative and the fourth is positive.

During the second quarter, in industries like Agriculture, Manufacturing, Construction, and because Local Education closes for the summer, all contribute to a seasonally higher payroll with students and teachers taking on summer jobs. The higher payroll in the fourth quarter is due to bonuses and the holidays with employment increasing seasonally for the holiday shopping season. Typically, the third quarter has the highest average monthly employment and gross taxable sales, due to multiple job holding and seasonal factors associated with tourism.

If we include gross sales tax in the analysis, regression analysis shows CES (and again the third quarter as a dummy variable) and the second quarter were statistically significant at the one percent level (t-statistic) and explains 85 percent of the variation in gross sales tax (See Table 2). The coefficients in Table 2 show the percent change in gross sales tax as a function of percent change in employment. For instance, a one percent increase in employment is associated with an increase in gross sales tax by 2.414 percent from the third quarter of 1996 to the fourth quarter of 1996, although there is some seasonal variation.

Finally, comparing the percent change in Wyoming's total payroll, to the Consumer Price Index (CPI) can explain how the economy is fairing historically. The percent change in total payroll was higher than the U.S. CPI from the third quarter of 1990 to the second quarter of 1995, except in four quarters (see Figure 2). From the third quarter of 1995, to the second quarter of 1996, the growth of total payroll was below the national inflation rate. The purchasing power of the average Wyoming consumer decreases substantially when total payroll falls below the CPI. The economy of Wyoming did not fair well in 1995 and 1996. Will Wyoming's economy come out of this stagnation? Only if employment and total payroll start to grow in 1997, causing the demand for goods and services to grow. The answer to that question is published every month in the "Wyoming Nonagricultural Wage and Salary Employment" section of TRENDS.

Mike Evans is a Senior Economist, supervising Bureau of Labor Statistics (BLS) programs with Research & Planning.

David Black is a Senior Economist with the Department of Administration and Information's Economic Analysis Division.

1 "Work, Pay, and Consumer Spending: Part One: Sales Tax Collections and Total Payroll" in the May 1997 issue of TRENDS.

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