An Update on Business Employment Dynamics Kevin Cooksey Chief, State Operations and Frame Research Branch Business Employment Dynamics QCEW Program Bureau of Labor Statistics AUBER Conference October 24, 2016 Fayetteville, AR

Outline What is the BED and what does it measure? BED as a measure of entrepreneurship New data on BED by firm age and size QCEW data users survey

What is the BED? Data Source: Longitudinal, linked microdata from the Quarterly Census of Employment and Wages (QCEW) QCEW microdata consist of employment and wage reports by business establishments, and are collected by state unemployment insurance (UI) programs BLS staff review UI administrative data for outliers and longitudinal linkages (including mergers/acquisitions) Businesses are assigned a unique numeric identifier when they are loaded to the Longitudinal Database (LDB) that allows us to track them over time

BED Scope BED Scope: U.S. private sector, excludes government and private household employees ~117.4 million employees ~7.6 million establishments

What does the BED measure? BED measures changes in employment at the establishment level on a quarterly basis Focus on establishments that gain or lose jobs over the quarter Approximately 50% of establishments report no change over the quarter Changes in employment are measured as: Gross job flows: gains and losses Openings and closings, births and deaths Available by state, industry, age, and size Economic Concepts: Job churn and creative destruction

Who Uses the BED data? Federal Reserve: FRB uses BED data on job creation and job destruction; Regional Fed Banks (Richmond, Philadelphia, etc) use BED data for regional analysis State Labor Market Information (LMI) Bureaus: use BED data to compare state and national business cycle trends Small Business Administration (SBA): uses BED data tabulated by size of firm to measure job creation and destruction by small businesses National and Local Media: use BED job flow data for new and existing businesses to explain and discuss economic trends

BED Data Series Available Entrepreneurship Measures Birth/Death Firm & Establishment Age & Survival Job Creation and Destruction Measures National :Total Private, NAICS Sector, NAICS Subsector State: Total Private, NAICS Sector Firm & Establishment Size Measures Small (1-49 emp.), Medium (50-249 emp.), Large (250+ emp.) Nine OMB-suggested Size Classes

Timely, Accurate, Relevant Available 7 months after the reference quarter 1st Quarter 2016 data will be released on November 9th: http://www.bls.gov/news.release/pdf/cewbd.pdf Accurate Zero sample error Multiple layers of review to ensure data accuracy Minimal Revisions Relevant Let me show you some examples

Gross Job Gains and Losses Notice the reduction in dynamism. Gross job gains Gross job losses Left axis in thousands, Total private sector, Seasonally adjusted Source: U.S. Bureau of Labor Statistics Note: Shaded area represents NBER defined recession period

Components of Gross Job Gains and Losses Expansions Contractions Expansions and contractions make up the majority of employment dynamics. Openings Closings Left axis in thousands, Total private sector, Seasonally adjusted Source: U.S. Bureau of Labor Statistics Note: Shaded area represents NBER defined recession period

BED Entrepreneurship Measures

The Decline of Job Reallocation or “Churn”- Rate Job Reallocation Rate (%) = Total jobs created plus total jobs destroyed, divided by total jobs in the economy.

Yearly Startups and Resulting Employment Over time, the number of startups has remained relatively stable while the jobs created by those startups has declined. The result is a lower average establishment “birth weight.”

Age data: Startups Are the Major Source of Net Employment Growth in the U.S.

Age and Survival Matrix

The Survival Curve: Survival Rates of Establishments by Birth Cohort On average 78.4% of businesses will survive the first year, and by the end of the fifth year less than half of all businesses will have survived. Source: Bureau of Labor Statistics, Business Employment Dynamics

BED by Age and Size

www.bls.gov/bdm

How much do older firms contribute to job growth? Firms 10 years or older created 800,000 jobs, or 29 percent of the total 2.7 million net employment gain in the year ending March 2015.

How much do startup firms contribute to job growth? In the year ending March 2015, startup firms—firms less than 1 year old—created 1.7 million jobs or 60 percent of total employment growth. More than half these jobs were from firms with fewer than 10 employees.

How does the age or size of the firm affect the rate of business closures? In 2015, 788,000 establishments closed. 55 percent were from firms 10 years or older 16 percent were from firms 5 to 9 years old 28 percent were from firms less than 4 years old Of the establishments that closed from March 2014 to March 2015, 91,000 of them, or 12 percent of the total, had 500 or more employees.

Notable Uses Paul Davidson, USA Today Business start-up activity is surging. Here's why. “The number of business start-ups with at least one employee… is also rising. There were 398,000 additional employer businesses that were a year old or younger last year, up 7% from 2014 and the most since 2008, according to the Labor Department” Source: http://www.usatoday.com/story/money/2016/08/28/business-startup-activity-surging-heres-why/89427774/

Conclusion Tremendous job churn not seen in net job data Gross job changes at expansions and contractions larger than at openings and closings Gross job gains and losses have business cycle properties A wealth of data in the recently released BED by Age and Size

www.bls.gov/bdm

Chief, State Operations and Frame Research Branch Kevin Cooksey Chief, State Operations and Frame Research Branch Business Employment Dynamics QCEW Program Bureau of Labor Statistics Cooksey.Kevin@bls.gov 202-691-6483