1. U. S. Bureau of Labor Statistics Future Developments in Business Employment Dynamics Kristin Fairman, Sheryl Konigsberg Views expressed here are those of the authors and not BLS.

2. 2 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data

3. 3 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

4. 4 What are Business Employment Dynamics? Set of statistics measuring changes in employment at the establishment level BED data demonstrate the idea that jobs are constantly created and destroyed Job growth is the net result of jobs being created, or gained, and destroyed, or lost Data source for BED is the Quarterly Census of Employment and Wages

5. 5 Quarterly Census of Employment and Wages Census of all U.S. establishments –at least one employee –accounts for nearly 98% of all U.S. non-farm workers QCEW is a universe, or complete list, and is not subject to errors such as sampling or estimation error

6. 6 BED Components Establishment – economic unit that produces goods or services, usually one physical location Gross Job Gains – sum of employment at opening and expanding establishments –Openings – establishments that did not exist or reported zero employment in the prior quarter and report positive employment in the current quarter –Expansions –establishments that report employment increases over the quarter

7. 7 BED Components Gross Job Losses – sum of employment at closing and contracting establishments –Closings – establishments reporting positive employment in the prior quarter and report zero employment or do not exist in the current quarter –Contractions - existing establishments that report employment decreases over the quarter

8. 8 How are BED data used? BED data used to assess: –the business cycle –the level of labor market volatility –the effect of establishment employment changes on aggregate employment A decrease in employment stemming from gross job gains decreasing has far different business cycle implications than a decrease due to gross job losses increasing

9. 9 Current BED Data National data –first published for fourth quarter 2002 National data by industry –first released for third quarter 2003 National data by firm size class –first released for second quarter 2005 All data is available from third quarter 1992

10. 10 Why BED is so exciting Job churning, or reallocation, not seen in net job data Expansions and contractions are larger than at openings and closings Gross job gains and losses have business cycle properties Gross job gains remained low in 2006, while gross job losses are on decline

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13. 13 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

14. 14 Recent Developments: Industry Service-providing and goods-producing sectors created more jobs than they destroyed during 2005 and 2006 Job creation and destruction has slowed in most industries –Construction industry –Education and healthcare industry Manufacturing sector –experiencing a decline in the overall number of jobs –the numbers of gross jobs lost has been declining in recent quarters

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17. 17 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

18. 18 Recent Developments: Size Class Largest and smallest firms have largest shares of gross job gains and gross job losses –Smallest firms tend to have the highest share of jobs created from openings and jobs lost from closings –Largest firms tend to have the highest share of jobs created from expansions and jobs lost from contractions Firms with 1000 or more employees and firms with 20-49 employees have been the largest contributors to net job growth

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20. 20 Recent Developments: Size Class Jessica Helfand, Akbar Sadeghi, Employment Dynamics: small and large firms over the business cycle, March 2007 –Small firms, those with 1 to 499 employees, create about 64 percent of new jobs –Share of growth of small firms is larger than their base share of employment causing small firms to become large, increasing the employment share of large firms over time –Firms of different size class behave differently throughout the phases of the business cycle –Contribution of large firms to net job gains during the current economic recovery appears to come from a fall in gross job losses, rather than increased job creation –Bulk of net job losses in the 1991 recession occurred in small firms, while large firms generated the majority of job losses during the economic slowdown of 2001

21. 21 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

22. 22 Firm Survival Amy Knaup, Survival and Longevity in the Business Employment Dynamics Data, May 2005 –66% of business establishments opening in second quarter of 1998 were still in existence 2 years later Amy Knaup and Merissa Piazza, "Establishment Survival Using the BLS Longitudinal Database," December 2006 –Extends original cohort through 2005

23. 23 Firm Survival: Seven Year Survival Study Findings from Knaup, Piazza study: –Survival rates across industries tend to stay consistent over time –Employment patterns still vary more than survival rates –Surviving establishments continue to increase employment over their lifetime –A greater percentage of establishments survive in the fifth year and beyond

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25. 25 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

26. 26 Future BED Developments: State data Expected release date: Summer 2007 Preliminary data for second quarter 2006 shows: –Gross job gains exceeded gross job losses in 43 states –Alaska had the highest rates of gross job gains, gross job losses and net change Preliminary data for September 1992 to June 2006 shows: –States with high rates of job growth tended to have higher rates of job churn –Nevada had the largest net change in employment –Alaska had the highest rates of both gross job gains and gross job losses

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28. 28 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

29. 29 Ongoing BED Research: Annual data Josh Pinkston and Jim Spletzer paper analyzed annual BED data –"Annual Measures of Job Creation and Job Destruction Created from Quarterly Microdata" Openings, expansions, closings and contractions CAN NOT be summed through the year to get an annual number

30. 30 Ongoing BED Research : Annual data Preliminary data shows: –Over calendar year 2005, 26.4 million jobs were created and destroyed –14.3 million jobs were gained and 12.1 million jobs were lost –2.1 million new jobs were added to the U.S. labor market –131,000 new establishments were added to the economy

31. 31 Agenda Business Employment Dynamics (BED) –What are business employment dynamics? –BED components –How are BED data used? –Current BED data –Why BED is so exciting Recent BED Developments –Industry data –Size class data –Firm survival Future BED Developments –State data Ongoing BED Research –Annual data –Birth and Death data –Establishment age –Entrepreneurship

32. 32 Ongoing BED Research: Establishment Births and Deaths How are births different from openings? Opening: any establishment that reports positive employment in current quarter and did not exist or was reporting zero employment in just the ONE prior quarter Birth: any establishment that reports positive employment in current quarter and did not exist or had zero employment for the prior FOUR quarters The difference between openings and births are seasonal re-openings

33. 33 Ongoing BED Research: Establishment Births and Deaths How are deaths different from closings? Closing: any establishment that was reporting positive employment in prior quarter but has zero employment or does not exist in the ONE following quarter Death: any establishment that was reporting positive employment in prior quarter but has zero employment or does not exist in the FOUR following quarters The difference between closings and deaths are temporary shutdowns

34. 34 Ongoing BED Research: Establishment Births and Deaths Preliminary estimates show In 2006 first quarter, there were 219,000 births –368,000 openings over same period In 2005 first quarter, there were 185,000 deaths –348,000 closings over same period * Data is seasonally adjusted

35. U. S. Bureau of Labor Statistics Measuring Births and Deaths in Business Employment Dynamics Data Series Akbar Sadeghi Preliminary data for research purposes only: do not cite.

36. 36 Separating Births from Openings and Deaths from Closings Openings: –Establishments with employment for the first time at the end of the quarter, or establishments that increase their third month employment from zero. –Openings include births and re-openings of seasonal businesses. Closings: –Establishments with Positive third month employment in the previous quarter and zero employment in the current quarter. –Closings include deaths and temporary shutdown of seasonal businesses. Estimates of births and deaths will lead to other measures of business demographics such as: –Age –Survival rates –Entrepreneurship

37. 37 How to Measure Births and Deaths Two main approaches: –First appearance (births) and last appearance (deaths) in database with positive employment. – Zero or no employment in several quarters followed by positive employment (births), and positive employment in a quarter followed by zero employment for several quarters (deaths) We selected the second approach. Some records appear for the first time with zero employment, not counted as births in the first approach.

38. 38 How to Measure Births and Deaths What month of employment? –For the second approach, what month of employment should be used? Third month or all three months of quarters? How many months or how many third months should be considered in identifying a birth in the second approach? To be consistent with other BED data elements, we selected the third month as employment reference month. We selected 4 quarters of zero or no employment for both birth and death definitions: –Birth: Positive third month employment followed four quarters of zero or no employment. –Death: four quarters of zero employment followed the last quarter of positive third month employment Including the current quarter, five quarters of employment are compared for each record. Five quarters eliminate the seasonality effects.

39. 39 How many birth options tested? Option 1: births are new records that appeared for the first time in the database with positive third month employment. Option 2: births are records with positive employment in the third month of a quarter and zero or no employment in the third month of the last four quarters. Option3: births are records with positive employment in the third month of a quarter and zero or no employment in the last five quarters. Option 4: births are records with positive employment in the third month of a quarter and zero or no employment in all months over of the last four quarters. Option 5: births are records with positive employment in the third month of a quarter and zero or no employment in all months over of the last five quarters. Firm level births or entrepreneurial births.

40. 40 Entrepreneurial Births Entrepreneurial births are births at the firm level, as opposed to establishment level Establishment: an economic unit engaged in one or predominantly one activity at single location Firm may consist of several establishments. Firm-level data are compiled on aggregation of establishment under common ownership. A new addition to a multi-unit firm is a birth, but not an entrepreneurial birth.

41. 41 Number of Births

42. 42 Job Gains from births

43. 43 Number of Births is rising

44. 44 Declining average size of births and rising productivity

45. 45 Job growth vs. net establishment growth (birth rate minus death rate)

46. 46 Births per 1000 in labor force

47. 47 Conclusion Recent developments: currently being released –National BED data by industry –National BED data by size class Future developments –BED data by state Expected release summer 2007 Ongoing BED research –Annual BED data –Establishment Births and Deaths –Establishment Age –Entrepreneurship

48. U. S. Bureau of Labor Statistics For any comments or questions, please contact: bdminfo@bls.gov