Future Developments in Business Employment Dynamics

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Future Developments in Business Employment
Dynamics

• Kristin Fairman, Sheryl Konigsberg

Views expressed here are those of the authors and
not BLS.
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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

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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

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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

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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

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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

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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

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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

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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

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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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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

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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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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

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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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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

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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

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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

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Firm SurvivalSeven 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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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

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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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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

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Ongoing BED ResearchAnnual 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

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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

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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

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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

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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

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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

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Measuring Births and Deaths in Business
Employment Dynamics Data Series

• Akbar Sadeghi
• Preliminary data for research purposes only do
  not cite.

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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

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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.

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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.

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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.

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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.

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Number of Births
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Job Gains from births
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Number of Births is rising
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Declining average size of births and rising
productivity
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Job growth vs. net establishment growth (birth
rate minus death rate)
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Births per 1000 in labor force
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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

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For any comments or questions, please contact

• bdminfo_at_bls.gov