Establishment Employment Change and Survival, 1992-1996:

Analyses Based on a New, Longitudinal Data Base with Special

Focus on Information Technology Industries

by Dr. Richard J. Boden, Jr.

2000. [33] pages. The University of Toledo,

Toledo, Ohio 43606-3390,

under contract no. SBAHQ-99-M-0912.

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

Small businesses, the service sector, and high-technology businesses are each identified by many

sources as major creators of new jobs. But there is

disagreement as to how important their roles actually are. This study employs the new Business Information Tracking Series (BITS) to measure the contribution of four sizes of businesses (1-19 employees,

20-99, 100-499, and 500+) to job creation in each

year from 1992 to 1996 in three sectors—information technology (IT) industries, other goods-producing firms, and other service-producing firms.

Scope and Methodology

BITS (formerly known as the Longitudinal Establishment and Enterprise Microdata file, or LEEM) is

a microdata file containing annual records for nearly

every nonfarm private-sector establishment with positive payroll. The U.S. Bureau of the Census created the file with funding from the Office of Advocacy.

Each record contains information on an establishment’s employment, payroll, location, start year,

and four-digit Standard Industrial Classification

(SIC) code for each year that it had positive payroll, beginning in 1989. An establishment is a separate physical location at which business activity

occurs. For dependent establishments (those that are

part of a multi-establishment firm), each record also

contains information on the firm’s employment, payroll, primary SIC code, and location. This linkage

allows establishments to be tracked even if they are

part of different enterprises over time. At the time of

this research, the file extended through 1996; new

years are being added annually to the data base.

IT industries are defined as the 38 4-digit SIC

goods- and service-producing industries identified by

the U.S. Department of Commerce in “The

Emerging Information and Communications Technology Industry” (1998). Goods-producing industries

(other than IT goods) include agricultural services,

forestry, and fishing; construction; and manufacturing. Service-producing industries (other than IT services) include transportation, communications, and

public utilities; wholesale trade; retail trade; finance,

insurance, and real estate; and services.

In addition to tabulations of establishment

employment change, the study presents estimates

from multivariate models of establishment employment change and establishment survival. Results are

presented for the cohort of establishments started in

1992 and surviving to 1996.

Highlights

• Nonfarm private-sector employment grew by 9.4

million, or 10 percent, between 1992 and 1996.

Employment grew by 4 percent in goods-producing

industries, 12 percent in service-producing industries, and 19 percent in IT industries. The strongest

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growth in each industry group occurred in 1994-

1995.

• Service-producing industries accounted for most

(84 percent) of the 1992-1996 employment growth.

IT’s contribution to overall job growth, 0.5 mil lion

net new jobs in 1992-1996, may seem small at 6

percent of the total job growth, yet in 1992 IT industries represented just 3 percent of total employment

covered by BITS. Employment growth in IT industries burgeoned at the end of the period, accounting

for 12 percent of employment growth in 1995-1996.

• Small firms (firms with fewer than 500

employees) accounted for 69 percent of the total

1992-1996 employment change—all of the net

employment growth in goods-producing industries,

59 percent of the growth in service-producing industries, and 72 percent of the growth in IT industries.

• The smallest firms generally accounted for

the largest share of each industry group’s growth. In

1992-1996, firms with fewer than 20 employees

accounted for 43 percent of employment growth in

al l industries, 107 percent in goods-producing

industries, and 38 percent in IT industries. In service-producing industries, the under-20-employee

firms produced 35 percent of net new jobs; however,

firms with 500 or more employees contributed

more—41 percent.

• Firms were sorted into four equal groups (quartiles) based on their average establishment employment change in 1992-1996. Thus, the 25 percent of

firms with the highest percentage change in establishment employment were placed in the top quartile,

those with the lowest (or most negative) change in

the bottom.

• In the fastest-growing quartile, it is notable that

firms with 1-19 employees contributed 37 percent of

the job growth in goods-producing industries. That is

a bigger share than in all industries in the IT and

service-producing sectors, even though capital-intensive goods-producing industries are often seen as

requiring larger size to succeed than firms in other

industries. Most of the high-growth IT firms were

the largest firms, not tiny startups as might have been

expected.

• For establishments started in 1992, the median

survival duration was estimated. This statistic represents the number of years until half of the establishments started in 1992 were projected to close. For

independent establishments, the median survival

duration in all industries was about 4.5 years and

increased as the starting employment size increased.

In other words, stand-alone establishments that started large had a better chance of surviving. In contrast,

the median survival duration of dependent establishments is negatively related to 1992 employment size

of the firm to which they belong, other things being

equal; that is, generally, the smaller the owning

firm, the longer the survival of its owned establishments.

Conclusions

The BITS is a novel and important source of longitudinal data on firms and establishments, covering virtually all private sector industries. As this report

shows, the file has many potential uses.

One of the major reasons for developing the BITS

was to track employment growth by firm size for

all industries. Indeed, as an annual file, the BITS

allows for tabulations of employment growth within

annual intervals, an important attribute. Recall, for

instance, the finding that virtually all of the 1992-

1996 employment growth in IT industries occurred

in the 1994-1995 and 1995-1996 intervals.

The BITS can also be used to support multivariate

empirical analyses of establishment and firm

employment growth and survival. The models presented only hint at the potential of the BITS. The

strength of this file and the sophistication of analyses

of its contents can be elevated by augmenting it with

additional variables, including variables from other

sources that can be merged into the BITS by matching on its various industry and geography codes.

Ordering Information

The full text of this report, along with summaries of

other studies performed under contract to the U.S.

Small Business Administration’s Office of

Advocacy, is available on the Internet at

www.sba.gov/advo/research.

Printed copies are available from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

Tel.: (800) 553-6847

TDD: (703) 487-4639

Order number: PB2000-107715

Price codes: pending

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research is available on the Internet at www.ntis.gov.