The Labor Barometer

Employment trends are a useful barometer for gauging the business climate at ad agencies. This trend analysis is especially useful in spotting upturns, and the most recent readings are encouraging.

Few industries are more labor-intensive than advertising; around 60 cents of every dollar coming into an agency as revenue goes out, one way or another, through the payroll. When business softens, say after a big account loss, or in a more generalized recession, agency managers respond to the diminished revenue flow by cutting staff. The only place an agency can save big money is the one cost center where it spends big money: staffing.

You don’t need a particularly sensitive barometer to detect when business conditions have soured. You can pretty much see it by looking out the window. It’s trickier, though, to spot an upturn, since a true recovery may be preceded by false starts. That’s when employment trend analysis can be the most revealing.

Smart managers coming out of a recession—dumb managers may not make it out—are likely to resist rebuilding staff until they are convinced the recovery is real. Early in the upturn, they can speed up the treadmill or use freelancers to step up production without adding to “permanent” staff. But there comes a time when that’s not sufficient, and the calls go out to the headhunters.

Anecdotal evidence—like the recruiter who took last summer off but was recently still in the office at 7 p.m.—suggests that things have picked up. So, too, do the data.

Every month, the Bureau of Labor Statistics, part of the Department of Labor, releases employment tallies for a wide variety of economic sectors, including advertising agencies and some related fields. The data are available on a consistent basis going back to 1990.

The graph on this page is based on data for the past 15 years. It provides a simultaneous look at three things: employment changes at ad agencies, at PR shops and in the U.S. economy as a whole.

There’s a trick to getting all three measures to cohabit the same graph. After all, total employment stands at around 135 million, agency employment (which includes conventional agencies, media shops and direct response) is 278,000 and PR employment is less than one-fifth of that. The graph shows the three data series on an indexed basis, where each, regardless of its actual value, is assumed to be, in this case, 1, at the start of the series. That starting value of 1 is then changed by the same percentage that the underlying data change in each succeeding period.

Using this technique, we can see how phenomena of widely different absolute sizes change over time in relation to each other. We sacrifice the ability to see which is really bigger or smaller, but since we know that to begin with, it’s no great loss.

To a graphaholic, four things jump off the page. First is the spectacular rise in PR employment right until the bursting of the dot-com bubble; second is the pronounced, but less meteoric, rise of ad-agency employment up until the bubble’s pop; third is the agencies’ fall back to, and below, 1990 levels afterward; fourth is the relative steadiness of employment in the broader economy, especially compared to advertising and PR.

Two less obvious dynamics are on the graph as well. In economic terms, PR is the largest of the non-ad-agency sectors for which we have data, and its performance may be a proxy for something broader. PR employment grew by about 75 percent between 1990 and the moment when rationality quashed the exuberance. In the ensuing retrenchment, employment only sank around halfway back. (Agency employment is barely above 1990 levels.) The Internet’s rise, as well as the continued fractionalization of media, we suspect, has induced a shift in marcomm spending out of mainstream advertising and into PR and other disciplines, and that shift appears to be permanent.

Also, although it’s not blatant on this graph, the underlying data confirm that agency employment is finally climbing out of its hole. A release a week ago from the Bureau of Labor Statistics shows that the bumpy but clear rise in agency employment that began a year ago is still going on.

According to the busier-than-ever headhunters we spoke with, the employment upturn revealed by the data is happening in real life, too. Agencies have stepped up recruitment. But many of the new hires are folks with nontraditional skills—at least, for the typical TV-centric ad shop. Clients are seeing the need to reach consumers in new ways, and agencies are responding by adding the skills to do that, driving up the employment count and pushing the graph line higher.

Alan Gottesman is a managing director of West End Communications and a regular ‘Adweek’ columnist. He can be reached at