Monthly Labor Review • December 2008 

Measuring Entrepreneurship

Akbar Sadeghi

The births and deaths of business 

establishments in the United States

Bureau of Labor Statistics economists have tested various methods 

for defining and counting births and deaths of establishments 

and businesses; the results of their research will allow BLS

to better measure entrepreneurship in the United States 

Akbar Sadeghi is an 

economist in the 

Division of

Administrative 

Statistics and Labor 

Turnover,

Bureau of Labor 

Statistics. E-mail: 

sadeghi.akbar@bls.gov 

The role of entrepreneurs in the 

American economy is legendary. 

One of the unique characteristics of 

the U.S. economic system is the freedom to 

start a business relatively easily and quickly. 

Indeed, one of the engines of growth is the 

employment and wages generated by new 

businesses. It is also an economic reality that 

businesses close frequently. The interplay 

of business births and deaths is not fully 

understood with the existing range of economic measures available from U.S. statistical agencies. 

The story of entrepreneurship also entails 

a neverending search for new and imaginative ways to combine the factors of production into new methods, processes, technologies, products, or services. These efforts lead 

to the growth of new businesses, the decline 

of less productive ones, and the reallocation 

of resources from less profitable businesses 

and establishments to more profitable ones. 

This process is often referred to as “creative 

destruction,” a concept popularized by the 

economist Joseph Schumpeter.1

This article describes more than 2 years of 

research and development of concepts and 

methods. These findings lead towards a greater understanding of the role and dynamics of 

business formations and business deaths, of 

business survival, and of the changing contribution of American entrepreneurs. This work 

is expected to lead to the publication of new 

data series with quarterly estimates of business births and deaths under the BLS Business Employment Dynamics (BED) program, 

an outgrowth of the Quarterly Census of 

Employment and Wages (QCEW) program. 

In this article, the terms “births” and “deaths” 

refer to the births and deaths of entire firms 

or individual establishments. When the word 

“business” is used in the context of this article, 

it refers to both establishments and firms. 

However, establishment births and deaths are 

the article’s main focus. 

The BED statistics are based on measurement of “gross job flows.” Data development 

and economic analysis based on job flows 

are a new approach in labor market analysis 

that came about primarily through access 

to the microdata of U.S. business establishments.2

 Over the past decade, researchers 

utilized data sources such as the QCEW and 

the Census Bureau’s longitudinal database 

for the manufacturing sector to create a rich 

body of literature on this subject.3 Gross job 

flows are estimated by simply aggregating 

the net changes in employment at the establishment level. Gross job gains are the sum 

of all net gains in expanding and opening 

establishments. Gross job losses, similarly, 

are the sum of all net losses in contracting 

and closing establishments. The net change 

in employment is the difference between 

gross job gains and gross job losses. Gross 

job gains and gross job losses are indica-
Measuring Entrepreneurship

 Monthly Labor Review • December 2008

tive of job churn, and they reflect adjustments made by 

businesses in response to changes in economic events and 

conditions.

For the purposes of BED statistics, openings are defined 

as those establishments that had positive employment for 

the first time in the third month of the current quarter 

with no link to the previous quarter, or had positive employment in the current quarter and zero or no employment in the previous quarter.4

 “Zero employment” means 

that an employment level of zero was reported, whereas 

“no employment” means that there were not any employment numbers reported at all. In this article, the term 

“zero employment” is used to mean either zero employment or no employment. According to the BLS definition 

of openings, openings include both new startups (births) 

and reopenings of the existing seasonal establishments 

that reported zero employment in the previous quarter. 

Closings are defined in an analogous manner. Closings are 

establishments that reported positive employment in the 

third month of the previous quarter and zero employment 

in the current quarter. Closings include establishments 

that go out of business permanently (deaths), as well as 

seasonal businesses that shut down temporarily.

The concepts of establishment birth and establishment 

death—both of which exclude seasonal businesses—are 

highly significant for understanding the job market and 

the business cycle. Birth data provide a measure of entrepreneurial activities and gauge new entries and reallocation of resources towards growing areas. Births are entirely 

different from reopenings of existing businesses, which 

are included in current BED data on openings. Similarly, 

business death data measure failing enterprises and identify sectors from which resources are being shifted away. 

That again is different from the temporary plant shutdowns included in BED closings data. This article provides 

preliminary tabulations of business births and deaths and 

offers a methodology based on an analysis of the proposed definitions of birth and death. In what follows, first 

a brief overview of the Business Employment Dynamics 

concept, definitions and methodology is presented, followed by an analysis of the data on births and deaths that 

are based on the preferred method of estimation. Finally, 

alternative definitions of birth and death are discussed using birth and death estimates from the third quarter of 

1994 through the first quarter of 2007.

What are Business Employment Dynamics? 

The BED program publishes quarterly statistics on gross 

job gains and gross job losses. These statistics are derived 

from establishment-level microrecords of the QCEW program. The QCEW program’s estimates are based on mandatory quarterly reports on employment and wages submitted by all employers subject to unemployment insurance 

laws. The quarterly reports are only the starting point. The 

incoming UI data are reviewed and edited, industry codes 

are assigned and routinely updated, geographical codes 

are assigned and updated, employment and wage data are 

scrutinized, respondents are contacted to validate significant changes in employment, predecessors and successors 

are identified, and corrections are made on the basis of 

new information. This value-added process turns raw, 

unedited administrative data into high-quality, reliable, 

and consistent economic statistics. The resulting QCEW

statistics are the most accurate, timely, and frequent in 

the Federal statistical system at the local level. Each year, 

more than 850,000 records of newly born establishments 

are captured, coded and researched for predecessor and 

successor relationships. In the fourth quarter of 2007, the 

QCEW program reported an employment level of 137.0 

million in 9.1 million establishments for the total U.S. 

private and public sectors. 

The data gathered in the QCEW program provide a virtual census of employees on nonfarm payrolls, covering 98 

percent of such employees. In addition to being an accurate and detailed source of employment statistics, QCEW

serves as the sampling frame for numerous BLS surveys, 

as a benchmark for BLS’s critical Current Employment 

Statistics and Occupational Employment Statistics surveys, and as an input to the Bureau of Economic Analysis’ 

National Income and Product Accounts.

The QCEW records are matched across quarters to create a longitudinal history for each establishment. Records 

are linked by their unique identifiers, including State 

codes, unemployment insurance numbers, and reporting 

unit numbers. The linkage method is designed in such a 

way as to create a history for continuous records and identify entries and exits, while avoiding spurious births and 

deaths that could be reported in the event of any changes 

of ownership, mergers, acquisitions, spinoffs, or other corporate restructuring. 

The longitudinal database created from the linked records is used to construct BED data, including employment 

levels and counts of establishments at opening, expanding, 

closing, and contracting businesses. Employment figures 

can also be aggregated by an employer’s Employer Identification Number to measure BED data at the firm level. 

During the tabulation process, the employment reported 

in the third month of each consecutive quarter is used to 

measure the over-the-quarter employment change. The 
Monthly Labor Review • December 2008 

sum of employment at the opening establishments and 

the change in employment of the expanding establishments is gross job gains. Similarly, the sum of the priorquarter employment at the establishments that closed 

in the current quarter and the change in employment of 

the contracting establishments is gross job losses. The net 

employment growth for all firms can be measured in one 

of two ways: as the difference between total employment 

in the current and previous quarters or as the difference 

between gross job gains and gross job losses in the current 

quarter. 

Business births

Although the concept of business births seems self-explanatory, in practice, measuring business births and 

deaths raises a number of definitional issues that have to 

be resolved. One issue is related to timing—that is, when 

a birth actually occurs. New businesses go through different phases. A new business often starts with an idea in the 

mind of an entrepreneur, then emerges in a home office 

setting with only the founder or founders as employees, 

and finally reaches the point at which it hires additional 

labor. One important question is whether births should 

be identified and measured at the point at which employees are hired or sometime prior to that. In a similar vein, 

another question is whether the “employment” concept or 

the “employee” concept should be the basis for identifying 

and measuring births. If employment is the basis, then 

self-employed people should be counted when measuring births. EUROSTAT, the statistical arm of the European 

Union, recommends this approach and thus includes entrepreneurs who have not hired any additional employees 

in their estimation of births. By contrast, the Organization for Economic Cooperation and Development uses 

only enterprises with hired employees as the basis for 

birth counts. 

In some European countries, in response to a certain 

public policy, a large number of self-employed unincorporated enterprises regularly convert to formal corporations 

and become employers with one employee. This conversion distorts birth data that are based on the concept of 

having no employment in one period and having one or 

more employees in the next period. For that reason, the 

Organization for Economic Cooperation and Development initially recommended a two-employee threshold 

as another birth concept and referred to it as “economic 

birth.” It was eventually decided that the threshold would 

be an establishment with one employee, and this concept 

was incorporated into the final version of the Manual on 

Business Demography Statistics.5

Another methodological issue in defining births is the 

distinction between births and entries. Births are defined 

as the creation of a combination of new factors of production such as organization, fixed assets, employment, and 

so on. Entries, by contrast, include, in addition to births, 

events such as mergers and takeovers as well as reactivation, relocation and industrial reclassification of existing 

businesses. Birth estimates can change as the result of the 

inclusion or exclusion of any of these events that change 

the demography of businesses. 

In the United States, the Census Bureau’s Statistics of 

U.S. Businesses publishes annual series with data similar 

to the BED quarterly data from a longitudinal database 

called Business Information Tracking System.6 However, 

the Census Bureau’s definitions of terms related to births 

and deaths differ from BLS definitions. Census annual 

estimates of births exclude self-employment. Statistics of 

U.S. Businesses defines births as “establishments that have 

zero employment in the first quarter of the initial year and 

positive employment in the first quarter of the subsequent 

year.”7 When births are estimated from March to March, 

this definition is similar to BED’s definition of openings. 

According to the Census Bureau, entries are equal to new 

births plus reentries of temporarily inactive establishments. However, an establishment that reopens a few 

months into the year and then shuts down again before 

the end of the year would not be counted as a reentry. 

Deaths are defined as “establishments that have positive employment in the first quarter of the initial year and 

zero employment in the first quarter of the subsequent 

year.”8 This definition is equivalent to BED’s annual closings estimates. Exits are deaths plus temporary exits. An 

establishment that closes a few months into the year and 

then opens again before the end of the year would not be 

counted as a temporary exit. Thus, the Census definitions 

of entries and exits—like BED’s definitions of openings 

and closings that are based on annual data—eliminate 

most, but not all, temporary openings and closings. Some 

establishments that are considered births or deaths according to Statistics of U.S. Businesses could be seasonal 

businesses that happened to have zero employment in the 

March of the reference year.9

James R. Spletzer estimated the contribution of births 

and deaths to economic growth by using microdata on all 

establishments in the State of West Virginia.10 He defined 

net employment growth as the difference between total 

jobs created by births and expansions and total jobs destroyed by deaths and contractions. Births were defined as 

occurring during the first quarter of positive employment, 
Measuring Entrepreneurship

 Monthly Labor Review • December 2008

and deaths were defined as occurring during the last quarter of positive employment. Spletzer showed the contrast 

between those definitions of birth and death and an alternative definition in which births and deaths were designated as the first appearance and disappearance of records 

in the longitudinal database. The source of the difference 

was the inclusion of the establishments that reported zero 

employment at some point in their life cycle. In his analysis, Spletzer showed how alternative definitions of terms 

can aid in understanding the establishment’s life cycle and 

its hazard function—defined as the likelihood of failure 

for an establishment over a given length of time.

The counts of births and deaths in this article are derived from the BED longitudinally linked database. Selfemployed entities are not in the scope of BED data. In addition, establishments with zero employment are excluded 

from the counts of openings, and records are considered to 

be continuous in the events of mergers, acquisitions, and 

changes of ownership, as well as in the events of breakout 

and consolidation of multiworksite establishments. In addition, industrial reclassification of businesses and relocation of establishments within the States have no impact 

on the number of openings and closings. However, the 

reactivation of business units, the length of time between 

deactivation and reactivation, and the “unit of analysis” 

(firm or establishment) all have measurable effects on 

birth and death estimates. 

This article defines births as those records that had 

positive employment in the third month of a quarter and 

zero employment in the third month of the previous four 

quarters. This definition includes all records with positive 

employment that appear in the BED database for the first 

time—as well as those records that were inactive for longer 

than five quarters—but excludes seasonal businesses that 

reappeared with positive employment within the last five 

quarters. The article defines a death as a unit that reported 

zero employment in the third month of a quarter and did 

not report positive employment in the third months of 

the next four quarters. This definition is symmetric to the 

birth definition.

Entrepreneurial birth

Births can be estimated at the establishment (plant) level or 

at the firm level. An establishment represents an economic 

unit that produces goods and services, usually at a single 

location, and engages in only one or predominantly one 

activity. A firm, on the other hand, may consist of several 

establishments. When an establishment opens for business for the first time, it is counted as an establishment 

birth, a State-level firm birth, and a national-level firm 

birth. If the firm in question opens another establishment, 

this will be counted as another establishment birth and as 

a firm-level expansion. If that establishment is in another 

State, it also will be a counted as a State-level firm birth. 

National firm-level births are more indicative of entrepreneurship than establishment-level births. Births at the 

firm level are referred to as entrepreneurial births; they 

measure strictly new business creation and the spread 

of entrepreneurship and innovative activities. Firm-level 

births were estimated at BLS by aggregating establishment 

birth records using the corporate parent’s Employer Identification Number (EIN). The aggregated birth records 

were merged with the previous quarter’s EIN records, and 

new EINs were looked for in birth records. EINs are generally the same across all units in multiunit businesses. The 

aggregation was done at the State and national level, and 

two sets of estimates for firm-level births were estimated. 

These different measures of business entries are shown in 

charts 1 and 2. Some facts stand out from changes revealed in these charts:

1. All measures of births follow the same pattern of 

change over time, which covers periods of expansion, recession, and recovery during the business cycle. 

2. The number of jobs created by openings and births 

has trended downward since the first quarter of 1998.

3. The number of birth units generally follows an upward trend. The latest upsurge started from September 

2003, a month during the quarter in which the net change 

in employment turned positive for the first time since the 

official end of the 2001 recession.

Establishment births 

There were 201,681 establishment births in the fourth 

quarter of 2007, creating 858,997 jobs. (See table 1.) Seasonally adjusted, the number of establishment births per 

quarter exhibits an upward trend, whereas employment 

created by births is on a declining path. (See the smoothed 

lines in chart 3.) These trends mean a reduction in the average size of new startup businesses. Why is the average 

size of the new businesses shrinking? One possible explanation is the spread of new technologies and the ensuing 

rise in productivity that help all firms in general and new 

startup enterprises in particular. Changes in the average 

size of births are plotted against changes in the multifactor 

productivity11 index in chart 4. The chart shows that the 

declining average number of employees in new businesses 

corresponds with the rising level of productivity. It seems 

that, on the basis of the limited number of observations 
Monthly Labor Review • December 2008 

 Chart 1. Number of openings and births, seasonally adjusted, third quarter 1994 to fourth quarter 2007

 Chart 2. Jobs gained from births, seasonally adjusted, third quarter 1994 to fourth quarter 2007

Number of 

openings

or births

Number of 

openings

or births

450,0

400,00

350,0

300,00

205,00

200,000

150,00

100,000

50,00

0

450,0

400,00

350,0

300,00

205,00

200,000

150,00

100,000

50,00

0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20

Number of 

jobs gained

Number of 

jobs gained

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20

2,500,00

2,000,000

1,500,00

1,000,000

500,00

0

Openings

Establishment births

National-level births

State-level births

National-level births

State-level births

Establishment births

Openings

2,500,00

2,000,000

1,500,00

1,000,000

500,00

0
Measuring Entrepreneurship

  Monthly Labor Review • December 20

 Number of establishment births and deaths, jobs gains from births, and job losses from deaths, seasonally adjusted, 

 1993–2007

 Table 1.

Year 3 months 

ended

1993 ................. September – – 146,411 2.66 – – 

 December – – 148,902 2.69 – – 898,689 

1994 ................. March – – 157,530 2.84 – – 

 June – – 161,695 2.90 – – 964

 September 192,580 3.42 155,801 2.77 1,199,410

 December 185,558 3.28 165,343 2.93 1,150

1995 ................. March 184,744 3.25 155,566 2.74

 June 188,245 3.29 161,963 2.83 1,169,741

 September 185,859 3.24 166,564 2.90 1,156,421 

 December 190,420 3.31 167,050 2.90 1,182,439 1.21

1996 ................. March 192,102 3.32 168,674 2.92 1,182,672 1.

 June 190,472 3.28 166,979 2.87 1,239,14

 September 198,566 3.40 167,051 2.86 1,243,88

 December 206,418 3.51 169,248 2.88 1,323,667 1.

1997 ................. March 198,820 3.36 171,722 2.90 1,228,142 1.22 

 June 194,659 3.27 173,518 2.92 1,209,175 1

 September 196,694 3.29 167,718 2.81 1,257,988 1

 December 197,906 3.30 184,346 3.08 1,290,281 1.25

1998 ................. March 202,928 3.38 175,861 2.93 1,316,31

 June 206,380 3.41 168,237 2.78 1,312,843 1

 September 199,195 3.27 176,625 2.90 1,268,314 1

 December 195,142 3.19 181,148 2.96 1,215,041 1.15 

1999 ................. March 197,055 3.21 184,257 3.00 1,285,636

 June 205,357 3.34 187,169 3.05 1,301,

 September 204,504 3.32 185,483 3.01 1,250,538 

 December 205,743 3.32 182,615 2.95 1,232,52

2000 ................. March 210,098 3.38 185,137 2.98 1,205,869 1.10 1,

 June 202,284 3.24 184,026 2.94 1,141,189 1

 September 210,676 3.36 196,283 3.13 1,175,12

 December 204,953 3.26 194,205 3.09 1,166,088 

2001 ................. March 202,741 3.22 201,817 3.20 1,149,759 1

 June 200,776 3.19 204,769 3.25 1,155,720

 September 202,060 3.20 207,180 3.29 1,163,121 1.07 1

 December 197,852 3.14 198,283 3.14 1,132,7

2002 ................. March 202,060 3.20 189,753 3.00 1,190,106 1.11 1,

 June 208,377 3.28 188,363 2.97 1,200,356 1.

 September 200,293 3.14 186,557 2.93 1,059,18

 December 201,901 3.16 189,178 2.96 1,026,783 .

2003 ................. March 193,753 3.02 187,785 2.93 1,013,

 June 191,023 2.98 185,890 2.90 973,700 .91 98

 September 192,148 2.98 177,140 2.75 956,37

 December 199,808 3.09 179,594 2.78 1,004,104

2004 ................. March 204,878 3.15 182,352 2.81 997,67

 June 203,491 3.12 182,682 2.80 1,000,340 .

 September 210,149 3.20 182,726 2.79 1,014,37

 December 209,405 3.18 177,150 2.69 982,072 .

2005 ................. March 208,937 3.15 186,540 2.81 952,

 June 215,103 3.23 178,830 2.68 959

 September 219,708 3.27 183,897 2.74 987,041 

 December 218,471 3.23 187,124 2.77 

2006 ................. March 219,153 3.22 185,119 2.72 937,31

 June 219,221 3.20 195,405 2.86 979,41

 September 209,631 3.05 198,054 2.88 911,7

 December 218,537 3.17 195,428 2.83

2007 ................. March 209,034 3.02 – – 886,801 

 June 202,337 2.91 – – 873,91

 September 216,741 3.11 – – 930,23

 December 201,681 2.89 – – 858,997 

Births Deaths Job losses from deaths

Level

Job gains from births

Number of establishment births Employment

Rate Level Rate Level Rate Level Rate

NOTE: Dash indicates datum not available.
Monthly Labor Review • December 2008

 Chart 4. Average size of births and multifactor productivity, seasonally adjusted, 1994–2007

 Chart 3. Number of births and jobs created by births, seasonally adjusted, third quarter 1994 to third 

quarter 2007

11

110

10

100

9

90

8

2

1

0

Productivity

 index

[year 2000 = 100]

Average 

size of 

births

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20

Average birth size

Productivity

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200

1,400,00

1,300,00

1,200,000

1,100,000

1,000,000

900,000

800,000

700,00

600,00

500,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2

Jobs created

by births

Number of 

births

230,00

220,000

210,000

200,000

190,000

180,000

170,00

Jobs gained by births

Number of births

NOTE: Size of birth is determined by the number of hired employees present at the time of a birth.
Measuring Entrepreneurship

10 Monthly Labor Review • December 2008

for the birth data, there is a correlation between the rise in 

productivity and the decline in the average size of establishment births. However, a larger number of observations 

and a more detailed analysis may be needed to provide a 

conclusive view of the relation between these two factors. 

It is commonly recommended that data on business 

births be used in measuring and comparing entrepreneurial activities. But the number of births trends differently 

than the total jobs gained by the births: the number of 

births has risen, and the number of jobs gained has declined. If rising productivity or any other factor causes 

startup businesses to have a smaller initial size and lower 

total employment in the quarter in which they debut, the 

use of employment created by births as a measure of economic impact may not show the true effects of births and 

entrepreneurship. Because some newly born businesses 

will expand and become major contributors to gross job 

gains in subsequent quarters, the number of births may 

be even more significant than their initial contributions 

to total employment in measuring the trends of entrepreneurship and innovative activities. 

As newly born businesses mature and become continuous units in employment data series, they continue to 

contribute to total employment—either positively or negatively, depending on the direction of their employment 

changes. BLS hopes to group establishments into units 

called cohorts, which are clusters of establishments that 

were born in the same period. The cohorts that survive 

will have a long-term impact on the job market following 

their initial appearance. Because of the dynamic effect of 

the births, one should observe changes in the number of 

births in a particular period in order to estimate the births’ 

impact in the future. If a favorable economic condition 

leads to a surge in the number of births for a period—a 

“baby-boom event”—the impact will be echoed in the job 

market with varying intensity in the future periods. As 

shown in chart 3, the upward slope of the trend line for 

the number of births began to flatten in the end of the 

1990s, thus preceding the eventual economic slowdown 

that began in the first quarter of 2001. An upward swing 

in the number of births also resumed earlier than the actual recovery of the job market that began in September 

2003. 

Birth and death rates

The birth rate as a percent of total active establishments 

was 2.9 percent for the fourth quarter of 2007, and jobs 

created by births accounted for .8 percent of total employment.12 The overall birth rate as well as the birth rates by 

major industry sector trended downward from the third 

quarter of 1994 through the fourth quarter of 2007. (See 

chart 5.) The average quarterly birth rate for this timespan 

was 3.2 percent of total active establishments, .3 percent 

higher than the rate for the last quarter of the period. 

Employment resulting from births was 1.1 percent of 

total employment—a rather significant contribution. In 

the fourth quarter of 2007, jobs created by births were 11 

percent of total gross job gains. This 11-percent contribution (achieved in the first quarter of operation), along 

with the potential to grow and become major contributors 

to the future expansions, make newly born businesses an 

important part of the data to follow and analyze. When 

the net of birth and death employment data is considered, 

the contribution of birth and death to job creation appears 

even more dramatic. The net of jobs created by births and 

jobs lost by deaths accounted for one quarter of the net 

job growth of 520,000 that occurred during the fourth 

quarter of 2006. 

During the fourth quarter of 2006—the latest quarter 

for which establishment death data are available—195,428 

establishments went permanently out of business, losing 

824,354 jobs. The death rate for this quarter was 2.8 percent, and employment loss from deaths accounted for 0.7 

percent of total employment. The average death rate for 

the 1994–2006 period was 2.9 percent of total active establishments. During the same period, average quarterly 

gross job losses caused by deaths were equal to 1.0 percent 

of total employment. Birth rates always exceeded death 

rates from 1994 to 2006 except for the last three quarters 

of 2001, the same three quarters during which the 2001 

recession officially occurred. The gap between birth and 

death rates narrowed as the economy approached the recession period, and widened as the economy recovered. 

(See chart 5.) Because it takes a full year to determine 

whether a closure is temporary or permanent, the death 

data in chart 5 have a four-quarter lag. BLS will continue 

to publish death data with such a lag and revise closings 

as appropriate. 

Birth and death rates exhibit a diverse pattern of change 

compared with rates of expansions and contractions. The 

contraction and expansion rates remained flat throughout 

the 1990s, with the expansion rate exceeding the contraction rate. The contraction rate surpassed the expansion 

rate near the onset of the 2001 recession and remained 

higher until September 2003, constituting a span of eight 

quarters. (See chart 6.) In contrast, the birth rate began 

a downward trend and the death rate began a rise in the 

second quarter of 1998, and the death rate exceeded the 

birth rate for only three recessionary quarters in 2001. The 
Monthly Labor Review • December 2008 11

 Chart 5. Total private sector: birth rate from third quarter 1993 to fourth quarter 2007, and death rate 

from third quarter 1993 to fourth quarter 2006, all data seasonally adjusted

 Chart 6. Expansions and contractions as a percent of total employment, seasonally adjusted, third quarter 

1992 to fourth quarter 2007

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 

Expansions

Contractions

6.

6

6

6.

6.

5.

5

5

5.

5.

4.

6.

6

6

6.

6.

5.

5

5

5.

5.

4.

Percent of total 

employment

Percent of total 

employment

3

3.

3.

2.8

2.

3

3

3.

3.

2.8

2.

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 

Birth rate

Death rate

Percent Percent

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 2001). A birth must 

preceded by four quarters of zero or no employment, and a death must be followed by four quarters of zero or no employment. Therefore, there are no 

birth data availble for the first year in the chart, and there are no death data available for the last year in the chart.

Note: Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200
Measuring Entrepreneurship

12 Monthly Labor Review • December 2008

birth rate fell to the lowest level in September 2003 and 

then began to increase quickly, nearing the prerecession 

level in December 2004 and exceeding it in June 2005. 

Since the fourth quarter of 2005, the birth rate seems to 

have started a new downward trend. 

As of the fourth quarter of 2007—the most recent quarter for which relevant data are available—gross job gains 

from expansions had not hit the peak they had reached 

before the 2001 recession. The death rate fell from a high 

of 3.3 percent in the midst of the recession and reached an 

all-time low of 2.7 percent in the fourth quarter of 2004. 

The difference between birth and death rates indicates the 

rate by which the total inventory of business establishments grows. This net of birth and death rates excludes 

the quarterly changes in the total number of active establishments caused by temporary openings and closings of 

seasonal businesses. That rate is shown along with the net 

change in total employment in chart 7.

The sharp drop in net job growth in the middle of the 

2001 recession occurred at the same time as a brief decline 

in the total number of active establishments. The net birth 

rate experienced a slight downward trend prior to the 

start of the recession, hit a trough in the second quarter of 

2001, and has been on the rise since the official end of the 

recession in the fourth quarter of 2001. The net gains in 

total employment reached a positive level 2 years later in 

September 2003. The net addition to the total employers 

may also be seen through the gap between the birth rate 

and the death rate in chart 5. The gap narrowed as the 

economy approached the recession and widened as the 

economy expanded into full recovery. It appears that the 

trajectories of the rates of establishment births and deaths 

can provide additional information on the present state of 

the economy and help predict what may happen in future 

phases of the business cycle. 

Entrepreneurship rate

The United States is often viewed as one of the most hospitable environment for starting businesses, but a more 

precise measure of entrepreneurship is needed in order to 

make local and international comparisons. For this purpose, one can define the concept of “entrepreneurship rate” 

as the number of business births per 1,000 persons in the 

labor force. The ratio of births to population has been used 

in a number of studies as a measure of entrepreneurial ac-

 Chart 7. Employment growth, seasonally adjusted, third quarter 1994 to second quarter 2008; and 

establishment growth, seasonally adjusted, third quarter 1994 to fourth quarter 2006

1.20

1.00

.80

.6

.4

.20

.0

–.20

–.4

–.6

–.80

–1.0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2

1.20

1.00

.80

.6

.4

.20

.0

–.20

–.4

–.6

–.80

–1.0

Percent Percent

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 2001). Death rates a

calculated after a lag that is longer than the period necessary for employment growth to be calculated. This causes an absense of establishment growth 

data for 2007 and early 2008

Employment growth

Birth rate minus death rate
Monthly Labor Review • December 2008 1

tivities for regional or international comparisons.13 Labor 

force data were used to estimate this measure, taking into 

account births at both the firm level and the establishment 

level. The number of firm-level births per 1,000 persons in 

the labor force was 0.78 in the first quarter of 2007, up 

from a low of 0.75 in June 2003 but down from a high of 

0.94 in the fourth quarter of 1996. 

At the establishment level, the birth rate per 1,000 

persons in the labor force was 1.37 in the fourth quarter 

of 2007, down from a high of 1.52 in the fourth quarter 

of 1996. The gap between the two measures reveals the 

share of new establishments born under the ownership 

of the existing firms. The birth rate per 1,000 persons in 

the labor force does not include “nonemployer” business 

entities. Nonemployers are basically self-employed people 

who are not included in the BED database. The birth rate 

per 1,000 persons in the labor force, therefore, measures 

entrepreneurship at the stage where startup businesses 

begin to hire employees. The entrepreneurship rate is an 

extremely valuable byproduct of birth and death data. It 

can not only show and compare the level and change of 

entrepreneurial activities across countries and regions, but 

can also measure the effectiveness of policies as well as the 

role of the number of high-paying jobs in accelerating or 

decelerating entrepreneurial initiatives. 

Birth and death rates by industry

Birth and death rates also have been estimated and analyzed by eight selected industries: manufacturing, retail 

trade, information, accommodation and food, financial 

services, health services, education services, and construction. Birth rates have been on a downward trend across all 

industries. However, rates differ by industry and change 

at varying paces over time. Because of such variability, the 

ranking of industries in terms of birth and death rates 

changes over time. For example, the birth rate in the 

information sector was the highest among all industries 

because of the rapid development and expansion of technology in the 1990s. The rate surged from 4.0 percent in 

1994 to 5.7 percent in 2000. That rate has since decreased 

to 2.7 percent in the fourth quarter of 2007. The birth rate 

in the information sector is now third highest, ranking 

after construction and education services. The death rate 

in this sector also rose—from 3.0 percent in 1994 to 5.7 

percent in the third quarter of 2001. The death rate in the 

information sector has been declining since its peak in 

2001, but it still ranks the highest among all industries’ 

death rates. 

In manufacturing, the birth rate has fallen, and it ranks 

the lowest among all selected industries’ birth rates. The 

death rate in this sector was trending upward until the 

end of the 2001 recession. Since then, the death rate in 

manufacturing has been declining, and it currently ranks 

the second lowest among all selected industries’ death 

rates. Birth rates in particular sectors generally reflect the 

economic conditions in the sector in question. The current 

downturn in the construction and financial services sector 

is reflected in the sharp declines in birth rates in these two 

sectors that occurred in the first quarter of 2007. 

Other definitions of birth and death

The specific definitions of birth and death chosen by BLS

were the result of careful study. Economists defined five 

proposed measures of birth and three proposed measures 

of death for which they calculated time series of data from 

the third quarter of 1994 through the first quarter of 2007 

for births, and from the third quarter of 1993 to the first 

quarter of 2006 for deaths. They followed two approaches. 

One approach is based on the first appearance of a business unit in the QCEW longitudinal database of establishments with positive employment in the third month of 

the quarter; the other approach is based on examining the 

history of each record, and this approach identifies births 

as records with positive employment in the current quarter preceded by zero employment in the previous four or 

five quarters. 

Whereas the former method created one measure of 

birth, the latter method generated two measures, one 

based on analyzing employment from the third month of 

a quarter, and the other based on analyzing employment 

from all months of the quarter. The estimates generated 

by the second approach varied depending on the length 

of time during which the birth records had zero employment before reporting positive employment. To measure 

the effect of time, records were linked from six consecutive quarters and births were calculated on the basis of 

comparisons of employment from four and five consecutive third-months (henceforth, “third-month” refers to the 

third month of a quarter) and from 12 and 15 consecutive 

months; four additional measures of birth were created 

using these methods. The numbers of quarters that were 

included in the calculations were arbitrary; the primary 

objective in reaching back various numbers of quarters or 

months was to determine the amounts by which different lengths of time would change the resulting number of 

births. For the quarterly data, this period should exceed 

four quarters in order to exclude the effect of exit and reentry of seasonal businesses. Five possible definitions of 
Measuring Entrepreneurship

14 Monthly Labor Review • December 20

births are summarized as follows:

Definition 1: births are new records that appeared 

for the first time in the QCEW longitudinal database 

and have positive employment in the third month of 

the quarter.

Definition 2: births are records with positive employment in the third month of a quarter and zero 

employment in the third months of the previous 

four quarters. (This is BLS’s preferred definition.)

Definition 3: births are records with positive employment in the third month of a quarter and zero 

employment in the third months of the previous five 

quarters.

Definition 4: births are records with positive employment in the third month of a quarter and zero 

employment in all months of the previous four quarters.

Definition 5: births are records with positive employment in the third month of a quarter and zero employment in all months of the last five quarters.

A death occurs when a business with positive employment reports zero employment or does not report at all for 

a length of time. The questions under consideration when 

defining deaths are similar to those under consideration 

when defining births as establishments with positive employment preceded by zero employment. One must decide 

whether employment in the third month of the quarter or 

employment in all 3 months of the quarter should be used, 

and one must also decide how many quarters or months of 

zero employment need to follow the positive employment 

in order for a death to occur. Three measures of death were 

calculated. Each measure is based on a particular period 

with zero employment following a month with positive 

employment reported. The relevant periods are the following: 

1.four consecutive quarters in which there is zero employment in the third month, 

2. five consecutive quarters in which there is zero employment in the third month, and

3.twelve consecutive months of zero employment. 

The relevant length of time is the period of inactivity 

that is allowed before a business unit is declared dead. 

In the case of quarterly data, this should be at least four 

quarters in order to exclude seasonal businesses that have 

been shut down temporarily. To be symmetric, it would 

be preferable for the relevant timespan to be equal to the 

•

•

•

•

•

timespan applied in defining births. For these reasons, 

BLS’s preferred meausure of death is the first one: four 

consecutive quarters—following a month with zero employement reported—in which there is zero employment 

in the third month.

Evaluation of proposed methods 

To evaluate the merits of the five possible definitions of 

birth, one needs to examine three questions that define 

the differences among them. The first is whether to define 

a birth on the basis of the initial appearance of a record 

in the QCEW longitudinal database with positive thirdmonth employment, or to define a birth on the basis of 

positive employment reported by a business after four or 

five consecutive third-months, or 12 or 15 consecutive 

months, of zero employment. (New records have the status of “no employment” in the previous periods.) The former definition comprises new businesses registered with 

positive employment for the first time, whereas the latter includes not only births but also businesses that have 

been inactive for more than 1 year but reported positive 

employment again in the current quarter. (Establishments 

that are reactivated within a year are considered seasonal 

and are counted as openings in the BED data). 

Which of these two concepts is more suitable in defining a business birth? Establishment births based on 

the first appearance in the registry are more intuitive and 

logically consistent with the notion of birth as a new entity coming to life. Such a measure, however, may not be 

consistent with the openings in existing BED statistics and 

could underestimate the number of births. For example, if 

a business enters into the BED database for the first time 

with zero third-month employment, even if it has positive 

employment in the first and second month of the quarter, 

this unit will not be counted as an opening or birth. In 

the subsequent quarters, when the unit reports positive 

third-month employment, it will be counted as an opening, but not as a birth. Therefore, such a birth will never 

get a chance to be counted in a method based on the first 

appearance in the QCEW database. The sharp difference 

between estimates using this method and estimates using other methods indicates that using this method would 

underestimate the number of births. 

The second question that defines the differences among 

the methods of counting births is the following: in the 

zero-to-positive employment approach, what month of 

employment should be used—the third month? or all 

months of the quarter? The third-month approach is less 

restrictive, and it generates the highest estimates of births 
Monthly Labor Review • December 2008 1

in comparison with the all-months estimates. The thirdmonth approach is consistent with other BED data in 

which employment numbers from the third month of the 

quarter are used as the basis for job gains and job losses 

estimates

The third question is: how many months of zero employment need to be present before the emergence of positive 

employment in a record qualifies as a birth? There is no objective criterion used in selecting the length of the period 

of zero employment when defining a birth by the zero-topositive-employment approach. The longer the period is, the 

more likely the method is to exclude reactivated businesses 

and to generate proper births. In data that were discussed 

earlier in this article, openings with third-month positive 

employment and zero employment in the previous four 

quarters were the records that were identified as births. 

All methods compared

In a time series from the third quarter of 1994 through 

the first quarter of 2007, under five proposed definitions, chart 8 shows the number of private sector births 

and chart 9 shows jobs created by births. As can be seen, 

the pattern of change over time is similar for all definitions; in other words, the lines on each graph, although 

separate, move up and down almost in sync with the other 

lines on the same graph. Definition one, which measures 

birth on the basis of the first appearance of a record with 

positive third-month employment, generates the lowest 

number of births and displays a slightly different pattern 

of change from the other methods. Definition two has the 

least restriction and generates the largest number of births 

and employment. Definitions four and five, which define 

births as 12 and 15 months, respectively, of consecutive 

zero employment followed by positive employment, are 

almost identical.

Chart 10 and chart 11 show the number of establishment deaths and the number of job losses resulting from 

deaths—according to all three methods for estimating 

deaths—from the third quarter of 1993 through the first 

quarter of 2006. As is the case with births, the methods 

of estimation exhibit few differences and display the same 

general pattern of change over time. The number of deaths 

and employment losses from deaths is the highest when 

following the definition defined by positive employment 

in the third month of a quarter followed by zero employment during the third month of the four following quarters. Extending the length of time for zero employment to 

five quarters or observing 12 consecutive months of zero 

employment following reported positive employment 

does not generate significant changes.

For births, definition one is rejected because it excludes 

a significant number of new records that appear initially 

with zero employment. Although definitions two, three, 

four, and five all generally exhibit the same trend and pattern of change with few differences, it is definition two 

that is selected because it is consistent with the basic BED

concepts and methodology. For establishment deaths, definition one is selected. (Definition one is based on at least 

four quarters zero employment after the last positive employment reported.) This definition of death is somewhat 

unique among worldwide measures. Because the QCEW 

contains monthly employment, one can more easily and 

quickly separate seasonal closings from more permanent 

closings. Economists using other data sources may have 

to wait 2 or more years before being confident that closings are permanent. As a result, use of the QCEW-based 

BED measure of death will result in the most current and 

frequently published figures available. 

These chosen measures of births and deaths have the 

advantage of 1. being consistent with other BED data 

in that they use third-month employment as a defining factor, 2. being symmetrical in dealing with both 

births and deaths: four quarters of zero employment 

before a given quarter defines birth, and four quarters 

of zero employment after a given quarter defines death, 

and 3. making births a subset of openings, which makes 

them consistent with the existing published BED data. 

The analysis of data presented earlier in this article was 

based on birth and death estimates derived from these 

selected definitions. 

IN THIS ARTICLE BUSINESS BIRTHS AND DEATHS were 

measured using the QCEW longitudinal database. Alternative definitions were estimated and results were compared over time. The results showed small differences in 

the magnitude of births measured by alternative methods, 

but no significant differences in their patterns of change 

over time. The estimation of births on the basis of positive employment in the third month of a quarter and zero 

employment in the four previous quarters was selected as 

the preferred method. The same approach was employed 

in defining establishment deaths. Deaths are records with 

positive employment in the third month of a quarter followed by four consecutive quarters with zero employment 

during the third month. Entrepreneurial births were defined by measuring births at the firm level and excluding 

newly born units of multiestablishment businesses from 

total births. 
Measuring Entrepreneurship

16 Monthly Labor Review • December 20

 Chart 8. Number of establishment births, by proposed definition of births, seasonally adjusted, third 

quarter 1994 to first quarter 2007

 Chart 9. Job gains from establishment births, by proposed definition of births, seasonally adjusted, third 

quarter 1994 to first quarter 2007

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 200

Number of 

births

Number of 

births

230,00

220,000

210,000

200,000

190,000

180,000

170,00

160,00

150,00

140,00

Definition 1

Definition 2

Definition 

Definition 

Definition 

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200

1,400,00

1,300,00

1,200,000

1,100,000

1,000,000

900,000

800,000

700,00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20

Number of

jobs

Definition 1

Definition 2

Definition 

Definition 

Definition 

Number of

jobs

230,00

220,000

210,000

200,000

190,000

180,000

170,00

160,00

150,00

140,00

1,400,00

1,300,00

1,200,000

1,100,000

1,000,000

900,000

800,000

700,00
Monthly Labor Review • December 2008 1

 Chart 10. Number of establishment deaths, by three different measures of death, seasonally adjusted, 

third quarter 1993 to first quarter 2006

 Chart 11. Job losses from establishment deaths, by three different measures of death, seasonally adjusted, 

third quarter 1993 to first quarter 2006 

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200

220,000

210,000

200,000

190,000

180,000

170,00

160,00

150,00

140,00

130,00

Number of

establishments

Number of

establishments

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20

220,000

210,000

200,000

190,000

180,000

170,00

160,00

150,00

140,00

130,00

Four consecutive quarters with zero or no employment in 

the third month of each quarter

Five consecutive quarters with zero or no employment in 

the third month of each quarter

12 consecutive months of zero or no employment

Not:  Shaded bar denotes National Bureau of Economic Research (NBER)-designated recession (March 2001–November 200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20

Number of

job losses

1,300,00

1,200,000

1,100,000

1,000,000

900,000

800,000

700,00

Number of

job losses

Four consecutive quarters with zero or no employment in the third 

month of each quarter

Five consecutive quarters with zero or no employment in the third 

month of each quarter

12 consecutive months of zero or no employment

1,300,00

1,200,000

1,100,000

1,000,000

900,000

800,000

700,00
Measuring Entrepreneurship

18 Monthly Labor Review • December 2008

The birth data exhibited an upward trend in the number 

of births, a declining trend in the total number of jobs created by births, and a downward trend in the average size 

of births. A decreasing average size of births was found 

to be likely associated with rising productivity in the U.S. 

economy. The number of births per 1,000 persons in the 

labor force has been on the rise since September 2003, 

following a declining trend that started in the late 1990s. 

This research and analysis effort at BLS may result in 

routine publication of birth and death estimates. These 

major additions to the BED data series should prove to 

be useful in assessing aspects of the underlying health of 

the U.S. economy and in comparing U.S. employment dynamics with those of other countries. 

Notes

1 J.A. Schumpeter, Capitalism, Socialism, and Democracy (New York, 

Harper, 1975 [originally published in 1942]), pp. 82–85. 

2 For more details on gross job flows, see: Steven J. Davis, John C. Haltiwanger, and Scott Schuh, Job Creation and Job Destruction, (Cambridge, Mass., 

MIT Press, 1996). See also John M. Abowd, John Haltiwanger, and Julia Lane, 

“Integrated Longitudinal Employer-Employee Data for the United States,” 

American Economic Review Papers and Proceedings, May 2004, pp. 224–29. See 

also Timothy R. Pivetz, Michael A. Searson, and James R. Spletzer, “Measuring 

job and establishment flows with BLS longitudinal microdata,” Monthly Labor 

Review, April 2001, pp. 13–20. 

3 See Timothy Dunne, Mark J. Roberts, and Larry Samuelson, “Patterns 

of Firm Entry and Exit in U.S. Manufacturing Industries,” Rand Journal of 

Economics, Winter 1988, pp. 495–515; Timothy Dunne, Mark J. Roberts, and 

Larry Samuelson, “Plant Turnover and Gross Employment Flows in the U.S. 

Manufacturing Sector,” Journal of Labor Economics, January 1989, pp. 48–71; 

Steven J. Davis and others, Job Creation and Job Destruction; James R. Spletzer, 

“The Contribution of Establishment Births and Deaths to Employment 

Growth,” Journal of Business and Economic Statistics, January 2000, pp. 113–126; 

Christopher L. Foote, “Trend Employment Growth and the Bunching of Job 

Creation and Destruction,” Quarterly Journal of Economics, August 1988, pp. 

809–834. For a comprehensive review of employment dynamics, see Richard 

L. Clayton and James R. Spletzer, “Business Employment Dynamics,” National 

Bureau of Economic Research, forthcoming. The survival of business establishments has been discussed in Amy E. Knapp and Merissa C. Piazza, “Business 

Employment Dynamics data: survival and longevity, II,” Monthly Labor Review, 

September 2007, pp. 3–10. 

4 For a complete description and analysis of Business Employment Dynamics data series, see James R. Spletzer, R. Jason Faberman, Akbar Sadeghi, 

David M. Talan, and Richard L. Clayton, “Business Employment Dynamics: 

new data on gross job gains and losses,” Monthly Labor Review, April 2004, 

pp. 29–42. 

5 See Nadim Ahmad, “A Proposed Framework for Business Demography 

Statistics,” Organization for Economic Cooperation and Development, Statistics 

Directorate STD/DOC(2006)3, October 2006. Many of the methodological and 

measurement differences regarding birth, death and other concepts related to 

business demography statistics have been discussed and resolved in a joint effort 

by the Organization for Economic Cooperation and Development and EUROSTAT

in a recently published handbook entitled “EUROSTAT-OECD Manual on Business Demography Statistics,” on the Internet at www.oecd.org/document/34/

0,3343,en_2649_34233_39913698_1_1_1_1,00.html (visited Dec. 15, 2008).

6 Business Dynamics Statistics is another Census Bureau Program, and it 

is similar to Statistics of U.S. Businesses. See www.ces.census.gov/index.php/

bds/bds_overview (visited Dec. 15, 2008).

7 See www.census.gov/csd/susb/defterm.html (visited Dec. 15, 2008). 

8 Ibid.

9 For more information on Statistics of U.S. Businesses, see Ron S. Jarmin and 

Javier Miranda, “The Longitudinal Business Database, on the Internet at www.ces.

census.gov/index.php/ces/cespapers?detail_key=101647 (visited Dec. 15, 2008); 

to open the document, click on “View Paper.” See also Catherine Armington, Development of Business Data: Tracking Firm Counts, Growth, and Turnover by Size of Firms, 

SBA Office of Advocacy, Small Business Research Summary No. 245.

10 James R. Spletzer, “The Contribution of Establishment Births and 

Deaths to Employment Growth,” Journal of Business and Economic Statistics,

January 2000, pp. 113–26.

11 For the private business and private nonfarm business sectors, BLS defines 

the growth rate of multifactor productivity as “the growth rate of output less the 

growth rate of combined inputs of combined labor and capital.” See www.bls.

gov/bls/glossary.htm#M (visited Dec. 15, 2008).

12 Birth and death rates are defined as the number of births or deaths divided by total active establishments, and active establishments are the counts 

of establishments with positive employment in the third month of the current 

quarter. To be consistent with the BED program’s methodology, the number of 

establishments in the current quarter is averaged with the number of establishments in the previous quarter, and the resulting figure is used as the denominator in calculating the rates. 

13 See Business demography in Europe: Results for 10 Member States and 

Norway, Eurostat, 2004, available online at http://epp.eurostat.ec.europa.eu/

cache/ITY_OFFPUB/KS-DV-04-001/EN/KS-DV-04-001-EN.PDF. See 

also S. Michael Camp, The Innovation-Entrepreneurship NEXUS (Powell, Ohio, 

Advanced Research Technologies, LLC, 2005), available online at www.sba.gov/

advo/research/rs256tot.pdf (visited Dec. 15, 2008).