Monthly Labor Review • September 2007 

Business Employment Dynamics

Business Employment Dynamics data:

survival and longevity, II

Amy E. Knaup

and

Merissa C. Piazza

Amy E. Knaup is 

a Ph.D. candidate 

in economics at 

the University of 

Maryland, College 

Park, Maryland; 

Merissa C. Piazza is 

an economist in the 

Office of Employment 

and Unemployment 

Statistics, Bureau of 

Labor Statistics. E-mail: 

piazza.merissa@bls.

gov

A study that extends previous research on the longevity

of businesses shows that survival decreases at a decreasing rate; 

establishments that manage to survive the crucial 4-year 

period after their birth have a better chance of surviving longer

and experiencing employment growth

This study is an extension of a research 

summary published in the Review in 

2005.1 That piece examined survival 

rates from a cohort of establishments from 

the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages 

(QCEW) program over a 4-year period. The 

study presented here extends the previous 

cohort an additional 3 years to create a 7-

year survival analysis. 

Data sources

The QCEW program contains information 

on 8.9 million U.S. business establishments 

in both the public and private sector. These 

monthly business establishment data are compiled on a quarterly basis for State unemployment insurance tax purposes and are edited 

and submitted to the BLS. A Federal-State 

cooperative venture between the BLS and the 

State Workforce Agencies, the QCEW program collects information covering approximately 98 percent of nonfarm payroll employment in the United States. Data generated by 

the program serve as the sampling frame for 

a range of BLS establishment surveys and as a 

benchmark for the Current Employment Statistics survey. Outside researchers use QCEW

microdata to investigate topics in the field of 

labor economics, and such data are the largest 

single input to the Bureau of Economic Analysis personal income accounting program. 

QCEW program data also are used to generate 

gross job flows in the Business Employment 

Dynamics (BED) data series.

To construct the BLS longitudinal database, analysts link the data across quarters, 

using unique identifiers to track establishments, even when their ownership changes. 

The QCEW program has linked data from 

the first quarter of 1990 through the most 

current quarter; the data usually are available 7 months after the end of the reference 

quarter. The coverage and frequency of the 

data are unique in the Federal statistical 

system in that they allow tracking of the 

startup, growth, and failure of a particular 

establishment concurrently with the timing 

of those events. The program contains establishment-level data (that is, data relating to a 

specific location). Therefore, one can observe 

various characteristics of each establishment, 

such as the State, county, and industry in 

which it operates; its age, predecessors, and 

successors; its total quarterly wages; and its 

monthly employment. 

The BED data series takes advantage of 

the QCEW microdata by calculating gross 

job flows. BED data reveal the level of employment changes each quarter due to openings, closings, expansions, and contractions 

of businesses. These four categories illustrate the vast number of business and em-
Business Employment Dynamics

 Monthly Labor Review • September 2007

ployment changes that contribute to the overall net change 

in employment. The BED data on establishment openings 

constitute a broad category of new businesses consisting of 

both establishments that are born and establishments that are 

reopening, including establishments that open on a seasonal 

basis. The BED data allow for quarter-to-quarter comparisons 

of establishments that are changing, but do not indicate how 

a consistent set of businesses changes over the quarter. The 

analysis presented in this research summary is different in 

that it follows a carefully selected cohort of establishments 

from birth through 7 years of their lifetime. 2

Preparing a birth cohort

Births are defined as those establishments which are new in 

the reference quarter and show no positive employment for 

the previous four quarters. Each microdata record is tested 

for four quarters prior to the reference quarter, to prevent 

seasonal establishments from appearing in the birth cohort. 

Furthermore, these new establishments have no ties to any 

establishments that existed prior to the reference quarter. 

Thus, this approach eliminates changes in ownership from 

the cohort, as well as new locations of existing firms, which 

might be expected to behave differently from independent 

establishments. Another reason for not including new locations of existing firms is that they often represent administrative changes in the data rather than actual new locations. 

To include them would risk skewing the data in terms of 

both survival analysis and average employment.

The study presented here tracked the original 212,182 

new establishments across the Nation for the second quarter of 1998 (beginning in March of that year3

).This cohort 

accounts for approximately all births during that quarter, a 

typical quarter from 1992 to the end of the series.4

In the original study, births were tracked across 16 

quarters from March 1998 to March 2002 by a unique 

identifier. The current study tracks these establishments 

an additional 12 quarters, from March 2002 to March 

2005, creating a 7-year survival study. In the birth quarter, establishments are equivalent to firms. In subsequent 

quarters, establishments may be acquired by or merged 

with another firm, spin off a subsidiary, or open additional 

locations. Establishments that were involved in such succession relationships also were tracked across time, by 

following the successor establishments. The data on these 

successor establishments were aggregated and assigned 

a unique identifier that was linked to the original birth 

establishment.

Two-digit NAICS codes were used to group the establishments into 10 sectors: natural resources (NAICS codes 11 

and 21); construction (23); manufacturing (31–33); trade, 

transportation, and utilities (22, 42, 44–45, 48–49); information (51); financial activities (52–53); professional and 

business services (54–56); education and health serv-ices 

(61–62); leisure and hospitality (71–72); and other services 

(81). A small percentage (0.02 percent) of establishments 

did not have a NAICS industry classification over their lifetime and were excluded from the sectoral analysis. The 10-

sector grouping facilitates comparisons of survival between 

industry sectors, as well as comparisons between employment contributions in the initial quarter and over the subsequent 7 years. In the latter regard, average employment 

in the initial quarter is compared with average employment 

in subsequent quarters, as well as with the highest employment attained by an establishment, on average, during the 

7 years under study. That is, for each industry sector, peak 

employment, which can be attained by an establishment in 

any quarter of the given period, is compared with average 

initial employment.

Profile of survival

Across all sectors, 44 percent of the cohort survived 

through the fourth year (the end of the previous study) 

and 31 percent to the seventh year. (See chart 1.) This 

finding is consistent with the previous study in that the 

largest exit of establishments occurred during the first 

and second years and, after the fourth year, the percentage 

of establishments that exited slowed considerably. In essence, after 4 years the number of establishments exiting 

the cohort was decreasing, albeit at a slower rate, and after 

7 years almost a third of all establishments were still in 

business. One can see a smoothing of the survival curve 

and a dramatic decrease in surviving establishments in the 

first 4 years, while survival in years 5 through 7 increases 

in relation to survival during the previous 4 years. 

Individual industries behaved in a similar manner: the 

concentration of exiting establishments occurred during 

the first 4 years and slowed after that. (See chart 2.) In relation to the overall survival average, survival forms a pattern across industries: those industries which started the 

study with survival below the national average continue 

below average, those which began with average survival 

continue that way through the entire period, and those 

which were above average survival in the beginning stay 

above average throughout the period.

Analyzing the data by industry sector yields a result 

consistent with that found in the previous study. Then, the 

information sector had the lowest 2- and 4-year survival: 

63 percent and 38 percent, respectively; the trend contin-
Monthly Labor Review • September 2007 

ued in the current study, with the information sector having the lowest 6-year survival (28 percent) and the lowest 

7-year survival (24 percent). (See chart 2.) Education and 

health services continued to have the highest survival: the 

sector’s 6- and 7-year survival figures were 46 percent and 

44 percent, respectively. Because restaurants are classified 

under the leisure and hospitality sector, one might assume 

that they would have lower survival figures than the average in the cohort, but over the 7-year study, the restaurant 

sector maintained survival shares that were close to the 

national average. 

Growth of survivors 

The employment data on surviving establishments in 

the cohort reveal that, as establishments stay in business, their employment grows. In the first 4 years of 

existence, about 82 percent of establishments survive 

from year to year, but in the fifth year the percentage increases to more than 86 percent. By the seventh 

year, the survival of surviving establishments increases 

to more than 90 percent. The trend in chart 3 (see also 

table 1) demonstrates that the longer an establishment 

survives, the more likely it will continue to survive. 

Examining the employment patterns of this cohort reveals that even though 69 percent of its establishments did 

not survive to the seventh year, nationwide employment 

of the remaining establishments (605,975) was more than 

75 percent of the cohort’s original employment (798,066). 

(See tables 3 and 4.) Even with the large exit of establishments, the relatively small decrease in employment by the 

seventh year reveals that survivors’ employment tends to 

grow.5

The employment growth of survivors can be seen in 

the relationship between initial employment and average peak employment at 4 years and at 7 years. In the 

cohort studied, all sectors exhibit an increase in average 

peak employment from year 4 to year 7. The increase in 

average employment at 4 years (7.9 employees), compared with 13.1 employees at 7 years, shows the ongoing 

growth in employment even as establishments exit. (See 

table 4.) This trend reinforces the fact that, on average, 

surviving establishments’ employment grows as those establishments age.

Chart 1. Survival of new establishments from second quarter of 1998

Percent 

surviving

Percent 

surviving

Active 

births

(212,182)

First year

(1999)

Second year 

(2000) 

Third year

(2001)

Fourth year 

(2002)

100.0

80.0

60.0

40.

20.0

0.0

Fifth year 

(2003

Sixth year 

(2004

Seventh year 

(2005

Length of survival

100.0

80.0

60.0

40.

20.0

0.0
Business Employment Dynamics

  Monthly Labor Review • September 20

Chart 2. Survival of new establishments from second quarter of 1998, by industry

0 10 20 30 40 50 60 70 80 9

Percent surviving

Industry

Natural resources and mining

Construction

Manufacturing

Trade, transport, and utilities

Information

Financial activities

Professional and business services

Education and health services

Leisure and hospitality

Other services

Percent surviving

1 year

2 years

3 years

4 year

5 year

6 years

7 years

0 10 20 30 40 50 60 70 80 9
Monthly Labor Review • September 2007

The variation in employment growth contrasts 

with fairly stable establishment survival. One can see 

the lifetime contributions of employment in relation 

to opening contributions, and employment drops significantly after the fourth year, but remains stable at 

around the fifth-year level for most sectors. (See chart 

4.) This information sheds some light on manufacturing 

industry survival rates: even though the manufacturing 

			 National.................... 	 81.2	 81.0	 82.6	 81.7	 86.3	 89.9	 90.5

	Natural resources and

		mining ........................ 	 82.3	 84.5	 85.4	 83.4	 87.6	 92.0	 91.8

	Construction................ 	 80.7	 81.5	 81.5	 79.5	 86.8	 90.3	 89.8

	Manufacturing ............. 	 84.2	 81.6	 83.0	 83.2	 86.2	 90.6	 91.6

	Trade, transportation,

		and utilities................. 	 82.6	 80.9	 81.9	 81.7	 85.5	 89.3	 90.9

	Information .................. 	 80.8	 77.8	 78.7	 76.2	 82.9	 90.5	 87.6

	Financial activities ....... 	 84.1	 82.7	 84.2	 84.1	 89.2	 91.8	 91.5

	Professional and

		business services ...... 	 82.3	 81.2	 82.5	 80.3	 86.1	 90.4	 90.2

	Education and health

		services...................... 	 85.6	 85.1	 87.5	 86.9	 90.5	 92.8	 94.1

	Leisure and hospitality 	 81.2	 80.1	 82.5	 81.6	 87.1	 90.6	 90.9

	Other services ............. 	 80.7	 80.3	 82.3	 82.3	 84.4	 87.3	 89.0

			

Table 1. Survival rates of previous year’s survivors, by sector and year since birth, 1999–2005

NAICS supersector

First

year

(1999)

Second

year

(2000)

[In percent]

Fifth

year

(2003)

Third

year

(2001)

Fourth

year

(2002)

Seventh

year

(2005)

Sixth

year

(2004)

Chart 3. Survival rates of previous year’s survivors, 1999–2005

Percent 

surviving

Percent 

surviving

First year

(1999)

Second year

(2000)

Third year

(2001)

Fourth year

(2002)

Fifth year

(2003

Sixth year

(2004

Seventh year

(2005

95.

90.0

85.

80.0

75.

70.0

65.

60.0

55

50.

Length of survival

95.

90.0

85.

80.0

75.

70.0

65.

60.0

55

50.
Business Employment Dynamics

  Monthly Labor Review • September 20

 National................................	 798,066	 792,131	 781,506	 721,103	 670,111	 597,177	 615,090	 605,975

	Natural resources and

		 mining ..................................	 21,809	 19,781	 19,945	 17,636	 16,789	 14,726	 14,091	 12,836

	Construction............................	 98,750	 93,468	 84,550	 75,256	 69,426	 62,852	 62,489	 63,935

	Manufacturing .........................	 45,670	 51,271	 52,055	 50,073	 45,732	 38,404	 39,355	 37,636

	Trade, transportation, and

		 utilities ..................................	 139,125	 140,462	 137,448	 127,135	 118,266	 104,156	 113,398	 111,622

	Information ..............................	 17,794	 22,064	 25,085	 22,131	 18,241	 13,987	 15,640	 14,674

	Financial activities ...................	 45,098	 47,745	 46,314	 43,855	 41,665	 40,200	 43,360	 42,892

	Professional and business

		 services................................	 137,908	 154,160	 170,016	 158,281	 147,618	 130,403	 128,803	 129,938

	Education and health services 	 57,068	 64,594	 67,017	 65,534	 64,881	 61,482	 63,611	 62,328

	Leisure and hospitality ............	 152,668	 139,041	 126,323	 114,154	 105,941	 93,893	 97,933	 95,611

	Other services .........................	 69,736	 55,664	 49,639	 45,027	 39,932	 35,499	 34,700	 32,820

Table 3. Total employment of survivors, by sector and year since birth, 1999–2005

 NAICS supersector First

year

(1999)

Second

year

(2000)

Fifth

year

(2003)

Third

year

(2001)

Fourth

year

(2002)

Seventh

year

(2005)

Sixth

year

(2004)

Second

quarter,

1998

 

			 National........................................................................	 798,066	 3.8	 7.9	 13.1	

	Natural resources and mining .........................................	 21,809	 6.8	 14.8	 21.3	 	

	Construction....................................................................	 98,750	 3.6	 8.1	 12.4	

	Manufacturing .................................................................	 45,670	 6.2	 14.0	 21.8	 	

	Trade, transportation, and utilities...................................	 139,125	 3.3	 6.7	 11.5	

	Information ......................................................................	 17,794	 4.7	 14.6	 25.6	

	Financial activities ...........................................................	 45,098	 3.0	 6.4	 10.5	

	Professional and business services................................	 137,908	 3.4	 9.0	 16.6	

	Education and health services ........................................	 57,068	 4.9	 10.8	 16.2	

	Leisure and hospitality ....................................................	 152,668	 9.1	 15.2	 24.2	

	Other services .................................................................	 69,736	 1.8	 2.7	 3.9	

Table 4.

NAICS supersector

 Employment 

in second

quarter, 1998

Average

initial

employment

Average peak

employment 

7 years after

birth (current

study)

Average peak

employment

4 years after

birth (Knaup, 

2005)

 National................................	 212,182	 172,379	 139,543	 115,194	 94,116	 81,253	 73,074	 66,166

	Construction............................	 27,536	 22,219	 18,099	 14,748	 11,728	 10,176	 9,187	 8,251	

	Manufacturing .........................	 7,326	 6,168	 5,031	 4,174	 3,473	 2,995	 2,713	 2,484

	Trade, transportation, and

		 utilities ..................................	 41,797	 34,518	 27,928	 22,863	 18,674	 15,969	 14,262	 12,964

	Information ..............................	 3,793	 3,063	 2,384	 1,877	 1,430	 1,185	 1,073	 940

	Financial activities ...................	 14,853	 12,490	 10,333	 8,698	 7,314	 6,525	 5,991	 5,481

	Professional and business

		 services................................	 40,992	 33,743	 27,389	 22,599	 18,152	 15,623	 14,127	 12,739

	Education and health

		 services................................	 11,594	 9,923	 8,444	 7,389	 6,420	 5,807	 5,388	 5,068

	Leisure and hospitality ............	 16,834	 13,661	 10,941	 9,024	 7,367	 6,415	 5,814	 5,286

	Other services .........................	 39,783	 32,113	 25,783	 21,214	 17,458	 14,738	 12,863	 11,446

Table 2. Surviving establishments, by sector and year since birth, 1999–2005

NAICS supersector

First

year

(1999)

Second

year

(2000)

Fifth

year

(2003)

Third

year

(2001)

Fourth

year

(2002)

Seventh

year

(2005)

Sixth

year

(2004)

Second

quarter,

1998

Contributions to initial employment, average initial employment, and average peak employment, 

by sector

	Natural resources and mining ..	 3,198	 2,633	 2,224	 1,900	 1,585	 1,389	 1,278	 1,173
Monthly Labor Review • September 2007

Industry

Natural resources and mining

Construction

Manufacturing

Trade, transport, and utilities

Information

Financial activities

Professional and business services

Education and health services

Leisure and hospitality

Other services

1 year

2 years

3 years

4 year

5 year

6 years

7 years

0  50 100 

Chart 4. Employment patterns of survivors as a percentage of original employment, by industry

0  50 100 

Percent of original employment

Percent of original employment
Business Employment Dynamics

10 Monthly Labor Review • September 2007

industry has average survival rates, employment stayed 

above initial employment until the fourth year, when it 

returned to the level of the second quarter of 1998. 

Caution is advised, therefore, in judging the success of an industry sector only by its survival. For example, in comparing the sectors with the lowest and 

highest survival figures, it becomes clear that, despite 

having the lowest survival, the information sector had 

stronger employment growth than the education and 

health services sector. (See chart 4 and tables 2 and 3.) 

However, overall employment in education and health 

services was more stable. (See table 3.) 

EXTENDING THE COHORT OF KNAUP’S 2005 STUDY 

to 7 years yields results consistent with that study: the 

survival of establishments decreases at a decreasing rate. 

Industry sectors that had above-average survival after 4 

years continue to have above-average survival, and after 

7 years, those with below-average survival continue to 

have below-average survival. More importantly, establishments that manage to survive continue to exhibit 

employment growth. This movement demonstrates that 

even as establishments exit the cohort, the increase in 

hiring by surviving establishments produces job growth 

in the economy. 

Notes

1

 Amy E. Knaup, “Survival and longevity in the Business Employment Dynamics data,” Monthly Labor Review, May 2005, pp. 50–56.

2

 For a discussion of the BED 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.

3

 In the BED system, births are considered changes, and quarterly 

changes track over 4 months; that is, to calculate a first-quarter change 

(from January through March), one must include the previous December’s figure, and to calculate a second-quarter change (from April to 

June), one must include the previous March’s figure.

4

 For more information and a discussion of birth and death methodology, see Akbar Sadeghi, Richard L. Clayton, Sheryl L. Konigsberg, 

and David M. Talan, “Birth and Death of Business Establishments: 

Decomposition of Openings and Closings in the Business Employment Dynamics Data Series,” paper presented at the Third International Conference on Establishment Surveys (ICES-III), Montreal, 

Quebec, Canada, June 18–21, 2007.

5

 It might be argued that the small decrease in employment by the 

seventh year reveals, not that survivors’ employment tends to grow, 

but that big establishments tend to survive (or perhaps that a combination of the two occurs). However, this possibility is precluded 

because establishments with large employment were excluded from 

the study. The reasoning behind their exclusion was that confining the 

cohort examined to smaller entities would ensure that the appearance 

of new establishments in the data were births and not reopenings or 

spinoffs.