Monthly Labor Review July 2004 3

Size Class and Job Flows

One of the most interesting and often

asked questions in empirical economics

is whether small businesses create the

most jobs. Answering this question requires

longitudinal establishment microdata and is an

ideal application for the new Business Employment Dynamics data series produced by the

Bureau of Labor Statistics. Although it is often

argued that small businesses are the fountainhead of job creation and the engine of economic

growth, this view is not universally accepted,

largely because of differences in the methodology

used to construct net and gross job flow statistics.

Using different methodologies, this article calculates net and gross job flow statistics by size class,

with the aim of showing how alternative methodologies can produce sharply different portraits of

employment growth.

Methodology issues

Three methodology issues influence the calculation and interpretation of business employment

dynamic statistics by size class: (1) how establishments should be classified into size classes

in the construction of net and gross job flow statistics, (2) the appropriate measure to use in the

denominator in the calculation of net and gross

job flow rates, and (3) whether there are differences in the statistics if the establishment or the

firm is the unit of analysis.1

Defining size classes. With cross-sectional

microdata, defining size classes for establishments

Cordelia Okolie is an

economist in the

Office of Employment

and Unemployment

Statistics, Bureau of

Labor Statistics,

Washington, DC.

E-mail:

Okolie_C@bls.gov

Cordelia Okolie

Net and gross job flow statistics by size class are produced

with data from the Business Employment Dynamics program;

alternative methodologies for defining size classes

yield sharply different pictures of employment growth

Why size class methodology matters

in analyses of net and gross job flows

is straightforward. For example, an establishment

with 3 employees is classified into the category “1

to 4 employees,” and an establishment with 11

employees is classified into the category “10 to 19

employees.” By contrast, defining size classes with

longitudinal microdata is more difficult. For instance, if an establishment grows from 3 employees in the previous quarter to 11 employees in

the current quarter, in which size category does it

belong?

In the gross job flows literature, there are three

methodologies for defining size classes: (1) in

base sizing, establishments are classified into

size categories on the basis of their size in the

previous quarter; (2) in end sizing, establishments are classified into size categories on the

basis of their size in the current quarter; and (3)

in mean sizing, establishments are classified into

size categories on the basis of their average size

during the previous and current quarters. In the

earlier example in which an establishment grows

from 3 employees in the previous quarter to 11

employees in the current quarter, the base-sizing

methodology would classify that establishment into

the “1 to 4 employees” category, whereas the endsizing methodology would classify it into the “10

to 19 employees” category. The mean-sizing

methodology would classify the establishment into

the “5 to 9 employees” category, because the average size during the two quarters is 7 (3 + 11, divided

by 2).

The methodology of classifying establishments into size categories can have large

effects on business employment dynamics sta-
 4 Monthly Labor Review July 2004

Size Class and Job Flows

tistics. For establishments that are growing and that move

from one size class category to another, base sizing results

in statistics which indicate that employment growth is

coming from smaller establishments, whereas end sizing

results in statistics which indicate that employment growth is

coming from larger establishments. Similarly, for establishments that are contracting and that move from one size

class category to another, base sizing results in statistics

which indicate that employment decline is coming from

larger establishments, whereas end sizing results in statistics which indicate that employment decline is coming

from smaller establishments. Economists refer to this

statistical phenomenon as the “regression fallacy” or

“regression-to-the-mean” bias.2

Calculating rates. Another methodological issue is the

question of how to compute rates of net and gross job flows.

That is, should previous-quarter employment, current-quarter

employment, or an average of the two be used in the denominator of the rate? An example will help illustrate the

difference between the methods. Suppose employment increases from 1 to 2 and then declines back to 1. A conventional

growth rate that uses previous-quarter employment in the

denominator would yield a 100-percent increase followed by

a 50-percent decrease. Even though the employment changes

in levels sum to zero (a one-employee increase followed by a

one-employee decrease), the percentages do not sum to zero.

In fact, using previous-quarter employment in the

denominator results in the sum of the percentages being

greater than zero; the sum would be less than zero if currentquarter employment were used in the denominator. In

contrast, if average employment were used in the denominator, the growth rate in this example would be a 67-

percent increase [(2 – 1)/1.5 = 0.67] followed by a 67-percent

decrease. The example illustrates the fact that using average

employment in the denominator results in rates that are equal

in magnitude, but opposite in sign. (That is, the rates are

symmetric.)

Unit of analysis: establishment or firm? An establishment is

typically defined as an economic unit, such as a factory or store,

that produces goods or provides services. An establishment is

usually a physical location and is engaged in one, or predominantly one, type of economic activity. In contrast, a firm is defined

as an aggregation of establishments under common ownership

by a corporate parent. Establishment- and firm-level data will be

identical for firms composed of a single legal entity and thus

operating a single establishment. However, the size class distribution of employment differs at the establishment level compared with the firm level, because defining employment for a

multiestablishment firm involves aggregating multiple

establishments into a single larger firm. The methodological

question raised in this article is whether there is a difference

in net and gross job flow statistics if the establishment or the

firm is used as the unit of analysis. Job flows should be less

when the firm is the unit of analysis, because gains and losses

of different establishments within a multiestablishment firm

can offset each other.

Data and definitions

In what follows, net and gross job flows are computed

under all of the various combinations of methodologies. Net

and gross job flow statistics are calculated for establishments

classified into size categories based on base sizing, mean sizing, and end sizing. The statistics are presented as levels and

also as rates, with three possible denominators: previousquarter employment, mean employment, and current-quarter

employment. Also calculated in the article are net and gross

job flow statistics at both the establishment level and the

firm level.

The analysis uses data from the BLS Business Employment

Dynamics program to calculate the net and gross job flow

statistics. The new Business Employment Dynamics program

is an extension of the Quarterly Census of Employment and

Wages (QCEW) program. The data gathered in the QCEW

program are a comprehensive and accurate source of employment and wages, and provide a virtual census (98

percent) of employees on nonfarm payrolls. The QCEW data

are derived from quarterly Unemployment Insurance (UI)

administrative microdata that all employers subject to State

UI laws are required to submit. The establishment-level microdata in the QCEW program are then linked across time to

create a longitudinal data set that can be used to measure

establishment openings, expansions, contractions, and closings on a quarterly basis for the entire U.S. economy. This

longitudinal establishment-level microdata is the foundation

for the BLS Business Employment Dynamics program. The

net and gross job flow statistics produced from the program

are calculated from existing QCEW microdata without

additional data collection efforts or additional respondent

burden.3

Before discussing the results of the size class analysis, it is

important to provide definitions of several terms that are used in

discussing job flow estimates. Establishment estimates are

estimates generated at the UI reporting-unit level, whereas firm

estimates are estimates generated at the employer identification

number level. Employer identification numbers are assigned to

employers by the Internal Revenue Service to identify legal

taxpaying business entities. In general, a firm operating in multiple States will have a separate UI account for each State, but

will have one employer identification number covering all of its

establishments across the Nation.
Monthly Labor Review July 2004 5

Gross job gains are defined as the summation of employment

gains from expanding establishments and opening establishments. Gross job losses are defined as the summation of

employment losses from contracting establishments and closing

establishments. Net employment growth is the difference

between gross job gains and gross job losses and is also the

difference between employment levels in the current and previous quarters.

The statistics presented in this article use employment for the

first and second quarters of 2000 and are not seasonally adjusted. Employment for the quarter is measured for the pay period

that includes the 12th for the final month of the quarter. To be

consistent with the scope of the establishments included in the

Business Employment Dynamics program publications, private

household workers, establishments in the public sector, and

establishments located in Puerto Rico or the Virgin Islands are

excluded from the analysis in this article. The aggregate net and

gross job flow statistics presented herein replicate the official

statistics (not seasonally adjusted) from the BLS Business Employment Dynamics program.

Before turning to the analysis, one caveat should be made

perfectly clear. The empirical work presented in this article uses

one quarter of longitudinal establishment microdata (employment growth from March 2000 to June 2000) to analyze how net

and gross job flows are affected by various methodologies. It is

not clear how methodology effects might interact with seasonality and cyclicality effects; thus, using different quarters of

microdata may change the methodological and economic conclusions the article reaches.

Results: net employment change

Establishment-level net employment growth. Table 1 reports net employment growth statistics at the establishment

level, calculated under the three alternative measures of employer size and the three alternative methods of calculating rates.

The top third of the table uses the base-size method for categorizing establishments into size classes, the middle third uses

the mean-size method, and the bottom third uses the end-size

classification method. The three columns reporting net

employment growth as rates rather than levels use previousquarter, mean-quarter, and current-quarter employment in the

denominator.4

The first observation of note from the table is that the

method used to classify establishments into size classes has

substantial effects on the measurement of net employment

growth. The base-size statistics in the top third of the table

and the end-size statistics in the bottom third provide different pictures of employment growth by size class,

particularly for the smallest establishments. For example, for

the smallest size category, 1 to 4 employees, the base-size

statistic shows a net gain of more than 1 million jobs, whereas

the end-size statistic indicates a net loss of more than 300,000

jobs.

The base-size and end-size statistics for the largest establishments also differ. For example, the base-size statistic

shows that establishments with 500 to 999 employees had a

net loss of 5,982 jobs, whereas the end-size statistic reveals a

net gain of 285,743 jobs. Similarly, the base-size statistic

indicates that establishments with 1,000 or more employees

created 29,615 net jobs, in contrast to the end-size statistic,

which shows that such establishments created 342,036 net

jobs.

Clearly, the base-size and end-size statistics present sharply

different portraits of net employment growth. These divergent

outcomes are consistent with regression-to-the-mean effects:

the base-size statistics indicate that the smallest establishments

have substantial net job gains, while the end-size statistics

indicate that the smallest establishments have sizable net job

losses. The mean-size statistics in the middle of table 1 show a

net employment growth profile that is between the base-size

and the end-size profiles. The profile of net employment growth,

by size class and for alternative methodologies, is graphed in

chart 1.

With regard to the rates, the statistics given in table 1 show

that the three different methods of calculating rates lead to only

slight differences in the magnitude of net employment growth.

For example, the middle third of the table shows that the net

growth rate of establishments with 1 to 4 employees is 6.4 percent

with previous-quarter employment in the denominator, 6.2

percent with mean employment in the denominator, and 6.0

percent with current-quarter employment in the denominator.

For the largest size categories, the three methodologies result in

a difference of only one-tenth of one percentage point in the net

employment growth rates. Relative to the differences resulting

from alternative size classification methodologies, using alternative employment measures in the denominator of the net

employment change rate calculations has small effects regarding

how net employment growth is measured.

Calculated under mean sizing and with mean-quarter employment in the denominator, the net employment growth

rates are monotonically declining with size. Establishments

with 1 to 4 employees have a net growth rate of 6.2 percent,

and establishments with 1,000 or more employees have a 1.5-

percent net growth rate. Thus, during the period from March

2000 to June 2000, smaller establishments have a higher net

growth rate than larger establishments have. In addition to

the caveat that this finding may not hold for other quarters,5

it is important to keep in mind the distinction between rates

and levels. The levels implied by a small percentage of a large

base could exceed the levels implied by a large percentage of

a small base. For example, for establishments with 100 to 249

employees, a 2.2-percent net growth rate results in 401,843

new jobs, whereas, for establishments with 5 to 9 employees,
 6 Monthly Labor Review July 2004

Size Class and Job Flows

a 4.6-percent growth rate produces 397,509 new jobs.

Firm-level net employment growth. Table 2 reports net

employment growth statistics at the firm level, calculated

under the three alternative measures of employer size and the

three alternative methods of calculating rates. The main

results regarding how alternative methodologies affect calculations of the net employment growth of establishments also

hold for calculations of the net employment growth of firms.

Specifically, the method used to classify firms into size classes

has substantial effects on net employment growth statistics,

and the method used to calculate rates has relatively small

effects. For the smallest establishments and the smallest firms,

the base-size and end-size net growth statistics differ systematically in both magnitude and sign. The base-size and endsize estimates for the largest establishments and the largest firms

also yield different results with respect to the magnitude of net

job gains attributable to these businesses.

As mentioned earlier, the employment distributions differ

for establishments as opposed to firms. For example, in June

2000, establishments with 1,000 or more employees accounted for slightly more than 13 million employees, whereas

firms with 1,000 or more employees accounted for more than

41 million employees. In terms of percentages, 12 percent of

jobs were in establishments with 1,000 or more employees,

whereas 37 percent of jobs were in firms with 1,000 or more

employees. Could this difference in the distribution of

employment by size class affect the net employment growth

statistics? Using the statistics from the mean-size methodology of classifying establishments and firms into size

categories, chart 2 graphs the net employment growth by

size class for establishments and for firms. The chart shows

that, for most size categories, net job growth measured at the

establishment level is somewhat higher than net job growth

measured at the firm level. However, these small differences

may be accounted for in the largest firm size category; that is,

firms with 1,000 or more employees grew by 529,759 jobs,

whereas establishments with 1,000 or more employees grew

Table 1. Establishment-level net employment growth, by size class, March 2000 to June 2000

Employment Net employment growth

June 2000 Change Percent1 Percent2 Percent3

Base size class:

 Total ...................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 .......................................... 6,416,104 7,492,719 1,076,615 16.8 15.5 14.4

 5 to 9 .......................................... 8,536,938 9,096,884 559,946 6.6 6.4 6.2

 10 to 19 ...................................... 11,435,844 11,989,228 553,384 4.8 4.7 4.6

 20 to 49 ...................................... 17,852,421 18,493,078 640,657 3.6 3.5 3.5

 50 to 99 ...................................... 14,204,271 14,540,138 335,867 2.4 2.3 2.3

 100 to 249 .................................. 17,888,617 18,118,502 229,885 1.3 1.3 1.3

 250 to 499 .................................. 10,685,404 10,708,704 23,300 .2 .2 .2

 500 to 999 .................................. 7, 962,572 7,956,590 –5,982 –.1 –.1 –.1

 1,000 or more ............................. 12,690,056 12,719,671 29,615 .2 .2 .2

Mean size class:

 Total ...................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 .......................................... 6,195,311 6,589,831 394,520 6.4 6.2 6.0

 5 to 9 .......................................... 8,538,574 8,936,083 397,509 4.7 4.6 4.4

 10 to 19 ...................................... 11,494,948 11,997,377 502,429 4.4 4.3 4.2

 20 to 49 ...................................... 17,937,339 18,631,953 694,614 3.9 3.8 3.7

 50 to 99 ...................................... 14,275,241 14,760,229 484,988 3.4 3.3 3.3

 100 to 249 .................................. 17,963,618 18,365,461 401,843 2.2 2.2 2.2

 250 to 499 .................................. 10,643,839 10,884,222 240,383 2.3 2.2 2.2

 500 to 999 .................................. 7, 947,198 8,077,217 130,019 1.6 1.6 1.6

 1,000 or more ............................. 12,676,159 12,873,141 196,982 1.6 1.5 1.5

End size class:

 Total ...................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 .......................................... 6,783,156 6,473,174 –309,982 –4.6 –4.7 –4.8

 5 to 9 .......................................... 8,475,384 8,726,219 250,835 2.9 2.9 2.9

 10 to 19 ...................................... 11,345,563 11,788,778 443,215 3.9 3.8 3.8

 20 to 49 ...................................... 17,776,005 18,542,280 766,275 4.3 4.2 4.1

 50 to 99 ...................................... 14,180,981 14,792,541 611,560 4.3 4.2 4.1

 100 to 249 .................................. 17,869,045 18,546,738 677,693 3.8 3.7 3.7

 250 to 499 .................................. 10,614,761 10,990,673 375,912 3.5 3.5 3.4

 500 to 999 .................................. 7, 929,750 8,215,493 285,743 3.6 3.5 3.5

 1,000 or more ............................. 12,697,582 13,039,618 342,036 2.7 2.7 2.6

1 Calculated with previous-quarter employment in the denominator. 3 Calculated with current-quarter employment in the denominator. 2 Calculated with mean-quarter employment in the denominator.

March 2000

Table 1.

Number of employees
Monthly Labor Review July 2004 7

by 196,982 jobs. The obvious conclusion, based upon chart 2, is

that using the establishment, rather than the firm, as the unit of

analysis does affect how we interpret the net employment

growth attributable to small businesses compared with that of

large businesses.

Results: gross job flows

Establishment-level gross job flows. The statistics in tables 1

and 2 report how employment grew from March 2000 to June

2000. This change in employment is the net result of the millions

of business establishments in the U.S. economy changing their

specific employment levels. Statistics on gross job gains and

gross job losses decompose the net establishment growth statistic in such a way that one can observe the underlying dynamics resulting from establishment openings and expansions, as opposed to that stemming from establishment

contractions and closings.

Establishment-level gross job flow statistics are reported in

table 3. Similar to tables 1 and 2, table 3 reports gross job gains

and gross job losses with the use of the base-size method, the

mean-size method, and the end-size method for classifying

establishments into size classes. All percentages reported in

 table 3 use mean-quarter employment in the denominator.

One immediate conclusion from the table is that the magnitude

of the gross job flow statistics is substantially larger than that of

the net employment growth statistics. The net employment

change of 3,443,287 jobs between March 2000 and June 2000 is

the result of gross gains of 10,306,902 jobs in expanding and

opening establishments and gross losses of 6,863,615 jobs in

contracting and closing establishments. Expressed in percentages, the net employment growth rate of 3.2 percent

(rounded) is the difference of the gross job gain rate of 9.4

percent and the gross job loss rate of 6.3 percent. The relatively

large gross job flow statistics indicate a substantial amount

of “churning” underlying net employment growth.6

By definition, because the sum of gross job gains and gross

job losses equals net employment growth, the substantial effects

of alternative size classification methodologies on the net

employment growth statistics also will affect the gross job gain

and loss statistics. The gross job gains for the smallest establishments are almost twice as high when calculated with the

base-size methodology (1.7 million) as when calculated with the

end-size methodology (911,000). Similarly, the gross job losses

for the smallest establishments are almost twice as high when

calculated with the end-size methodology (1.2 million) as

Chart 1. Establishment-level net employment growth, by size class, using alternative size class

 methodologies, March 2000 to June 2000

 Net change 

in employment

 Net change 

in employment

-400,000

0

400,000

800,000

1,200,000

-400,000

0

400,000

800,000

1,200,000

Base size

Mean size

End size

1 

to 4

10 

to 19

50

to 99

5 

to 9

20 

to 49

100

to 249

250

to 499

500

to 999

1,000 

or more

Size class
 8 Monthly Labor Review July 2004

Size Class and Job Flows

when calculated with the base-size methodology (668,000).

These differences in both the gross job gain and the gross

job loss statistics resulting from different size classification

methodologies help explain why alternative methodologies

have such a substantial effect on the net employment growth

statistics for the smallest establishments (a gain of 1,076,615

jobs compared with a loss of 309,982 jobs). For all size classes,

the mean-size methodology shows gross job flows that are

between the base-size and end-size flows.

The gross job gain and gross job loss statistics by size

class, computed under different methodologies, are depicted

in charts 3 and 4. The base-size and end-size statistics show

sharply different pictures of gross job flows by size class and

emphasize how important differences in methodology are in

examining longitudinal employment statistics. The high net

employment growth of the smallest establishments computed

under base sizing is the net result of both higher gross job

gains and lower gross job losses relative to gross job flow

statistics computed under alternative methodologies.

One additional finding in table 3 warrants mention: the gross

job gain rates and the gross job loss rates both monotonically

decline with employer size, regardless of the method used to

categorize employers by size class. This means that small

establishments gain and lose jobs at a much higher rate than

do large establishments. However, caution is advised when

these statistics are used to discuss job creation. First, finding

that small establishments have a higher gross job gain rate

than large establishments have is not equivalent to affirming

that small establishments have more gross job gains. For

example, from the mean size class portion of table 3, establishments with 1 to 4 employees have a gross job gain rate

of 20.9 percent, and establishments with 10 to 19 employees

have a gross job gain rate of 12.4 percent. But establishments

with 1 to 4 employees have gross job gains of 1.335 million

jobs, while establishments with 10 to 19 employees have

Table 2. Firm-level net employment growth, by size class, March 2000 to June 2000

 Employment Net employment growth

June 2000 Change Percent1 Percent2 Percent3

Base size class:

 Total .................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 ......................................... 5,298,827 6,199,132 900,305 17.0 15.7 14.5

 5 to 9 ......................................... 6,446,111 6,912,377 466,266 7.2 7.0 6.7

 10 to 19 ..................................... 8,048,243 8,512,151 463,908 5.8 5.6 5.4

 20 to 49 ..................................... 11,670,622 12,215,929 545,307 4.7 4.6 4.5

 50 to 99 ..................................... 8,926,325 9,218,794 292,469 3.3 3.2 3.2

 100 to 249 ................................. 11,274,986 11,537,905 262,919 2.3 2.3 2.3

 250 to 499 ................................. 7,955,188 8,050,794 95,606 1.2 1.2 1.2

 500 to 999 ................................. 7,536,968 7,596,981 60,013 .8 .8 .8

 1,000 or more ............................ 40,514,957 40,871,451 356,494 .9 .9 .9

Mean size class:

 Total .................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 ......................................... 5,097,751 5,469,221 371,470 7.3 7.0 6.8

 5 to 9 ......................................... 6,448,735 6,822,652 373,917 5.8 5.6 5.5

 10 to 19 ..................................... 8,081,625 8,522,480 440,855 5.5 5.3 5.2

 20 to 49 ..................................... 11,722,143 12,314,797 592,654 5.1 4.9 4.8

 50 to 99 ..................................... 8,954,323 9,359,883 405,560 4.5 4.4 4.3

 100 to 249 ................................. 11,346,789 11,724,154 377,365 3.3 3.3 3.2

 250 to 499 ................................. 7,936,870 8,121,182 184,312 2.3 2.3 2.3

 500 to 999 ................................. 7,556,513 7,723,908 167,395 2.2 2.2 2.2

 1,000 or more ............................ 40,527,478 41,057,237 529,759 1.3 1.3 1.3

End size class:

 Total .................................... 107,672,227 111,115,514 3,443,287 3.2 3.2 3.1

 1 to 4 ......................................... 5,541,802 5,349,199 –192,603 –3.5 –3.5 –3.6

 5 to 9 ......................................... 6,345,319 6,640,041 294,722 4.6 4.5 4.4

 10 to 19 ..................................... 7,923,764 8,377,792 454,028 5.7 5.6 5.4

 20 to 49 ..................................... 11,634,857 12,301,435 666,578 5.7 5.6 5.4

 50 to 99 ..................................... 8,921,007 9,397,704 476,697 5.3 5.2 5.1

 100 to 249 ................................. 11,362,907 11,859,807 496,900 4.4 4.3 4.2

 250 to 499 ................................. 7,906,094 8,185,199 279,105 3.5 3.5 3.4

 500 to 999 ................................. 7,517,396 7,760,933 243,537 3.2 3.2 3.1

 1,000 or more ............................ 40,519,081 41,243,404 724,323 1.8 1.8 1.8

1 Calculated with previous-quarter employment in the denominator.

2 Calculated with mean-quarter employment in the denominator.

3 Calculated with current-quarter employment in the denominator.

March 2000

Table 2.

Number of employees
Monthly Labor Review July 2004 9

gross job gains of 1.453 million jobs. Second, it is important

to keep in mind the distinction between gross job gains and

net job gains, because, although small establishments have a

high gross job gain rate, they also have a high gross job loss

rate.

Firm-level gross job flows. Firm-level gross job flow

statistics are reported in table 4. Although many of the

conclusions about net and gross job flows at the firm level

are qualitatively similar to the conclusions from the analysis

of establishment-level statistics, one quantitative difference

warrants mention. As noted earlier, a comparison of the

statistics produced by the mean size class calculations in

tables 3 and 4 shows that the net employment growth of the

largest employers (with 1,000 or more employees) varies

with whether establishments or firms are the unit of analysis

(196,982 net jobs, compared with 529,759 net jobs). The

number of gross jobs gained and gross jobs lost by the

largest employers also varies as a function of whether the

establishment or the firm is the unit of analysis. Establishments with 1,000 or more employees had 510,331 gross

job gains, whereas firms with 1,000 or more employees had

1,374,207 gross job gains. As reflected in the relative similarity of the gross job gain rates, this difference between

the establishment-level gross job flows and the firm-level

gross job flows is attributable to the difference in the

distribution of employment in establishments as opposed

to firms.

USING MICRODATA FROM THE NEW BLS BUSINESS

EMPLOYMENT DYNAMICS PROGRAM, this article has

reviewed some of the core methodological issues involved

in estimating net and gross job flows by size class. Some

significant findings from the review are as follows: (1)

base-sizing and end-sizing methods produce systematically

different pictures of job flows, particularly for the smallest

employers; (2) the measure used in the denominator to

calculate job flow rates has relatively small effects on the

net employment growth statistics; and (3) the contribution

of large employers to net employment growth depends

upon whether the unit of analysis is the establishment or

the firm.

Chart 2. Establishment- and firm-level net employment growth, using mean-size methodology, 

March 2000 to June 2000

 Net change 

in employment

 Net change 

in employment

0

400,000

800,000

0

400,000

800,000

Establishment

Firm

1 

to 4

Size class

5

to 9

10

to 19

20 

to 49

50

to 99

100

to 249

250 

to 499

500

to 999

1,000

or more
 10 Monthly Labor Review July 2004

Size Class and Job Flows

The BLS Business Employment Dynamics program is

dedicated to the development and publication of a wide

variety of measures that reveal the underlying movements in

business and employment. As a part of the extension of this

work, the Bureau plans to release a research or development

series of historical size class data in the fall of 2004, using the

Table 3. Establishment-level gross job flows, by size class, March 2000 to June 2000

Level Percent

Net Gross Gross Net Gross Gross

employment job job employment job job

growth gains losses growth1 gains1 losses1

Base size class:

 Total ..................................... 3,443,287 10,306,902 6,863,615 3.2 9.4 6.3

 1 to 4 ......................................... 1,076,615 1,744,771 668,156 15.5 25.1 9.6

 5 to 9 ......................................... 559,946 1,355,212 795,266 6.4 15.4 9.0

 10 to 19 ..................................... 553,384 1,490,750 937,366 4.7 12.7 8.0

 20 to 49 ..................................... 640,657 1,890,515 1,249,858 3.5 10.4 6.9

 50 to 99 ..................................... 335,867 1,199,079 863,212 2.3 8.3 6.0

 100 to 249 ................................. 229,885 1,229,324 999,439 1.3 6.8 5.6

 250 to 499 ................................. 23,300 604,134 580,834 .2 5.7 5.4

 500 to 999 ................................. –5,982 361,229 367,211 –.1 4.5 4.6

 1,000 or more ............................ 29,615 431,888 402,273 .2 3.4 3.2

Mean size class:

 Total ..................................... 3,443,287 10,306,902 6,863,615 3.2 9.4 6.3

 1 to 4 ......................................... 394,520 1,335,401 940,881 6.2 20.9 14.7

 5 to 9 ......................................... 397,509 1,280,702 883,193 4.6 14.7 10.1

 10 to 19 ..................................... 502,429 1,453,232 950,803 4.3 12.4 8.1

 20 to 49 ..................................... 694,614 1,920,906 1,226,292 3.8 10.5 6.7

 50 to 99 ..................................... 484,988 1,315,253 830,265 3.3 9.1 5.7

 100 to 249 ................................. 401,843 1,342,194 940,351 2.2 7.4 5.2

 250 to 499 ................................. 240,383 710,309 469,926 2.2 6.6 4.4

 500 to 999 ................................. 130,019 438,574 308,555 1.6 5.5 3.9

 1,000 or more ............................ 196,982 510,331 313,349 1.5 4.0 2.5

End size class:

 Total ..................................... 3,443,287 10,306,902 6,863,615 3.2 9.4 6.3

 1 to 4 ......................................... –309,982 911,039 1,221,021 –4.7 13.8 18.4

 5 to 9 ......................................... 250,835 1,147,300 896,465 2.9 13.3 10.4

 10 to 19 ..................................... 443,215 1,411,638 968,423 3.8 12.2 8.4

 20 to 49 ..................................... 766,275 1,968,567 1,202,292 4.2 10.8 6.6

 50 to 99 ..................................... 611,560 1,386,546 774,986 4.2 9.6 5.4

 100 to 249 ................................. 677,693 1,506,673 828,980 3.7 8.3 4.6

 250 to 499 ................................. 375,912 801,911 425,999 3.5 7.4 3.9

 500 to 999 ................................. 285,743 544,439 258,696 3.5 6.7 3.2

 1,000 or more ............................ 342,036 628,789 286,753 2.7 4.9 2.2

1 Calculated with mean-quarter employment in the denominator.

three alternative sizing methods described in this article. The

publication of this series is intended to stimulate a review of

the issues, methods, and concepts behind measuring employment change by size. The Bureau will be soliciting comments from the user community prior to introducing a formal

publication-ready series of size class data.

Table 3.

Number of employees
Monthly Labor Review July 2004 11

Chart 3. Establishment-level gross job gains, by size class, using alternative size class

 methodologies, March 2000 to June 2000

 Gross job

 gains

 Gross job

 gains

0

500,000

1,000,000

1,500,000

2,000,000

0

500,000

1,000,000

1,500,000

2,000,000

Base size

Mean size

End size

1 

to 4

Size class

5

to 9

10

to 19

20

to 49

50

to 99

100

to 249

250

to 499

500

to 999

1,000

or more

Chart 4. Establishment-level gross job losses, by size class, using alternative size class

 methodologies, March 2000 to June 2000

 Gross job

 losses

 Gross job

 losses

0

500,000

1,000,000

1,500,000

2,000,000

0

500,000

1,000,000

1,500,000

2,000,000

Base size

Mean size

End size

1

to 4

5

to 9

Size class

50

to 99

10

to 19

20

to 49

100

to 249

1,000

or more

250

to 499

500

to 999
 12 Monthly Labor Review July 2004

Size Class and Job Flows

Notes

1

 One other issue that has been raised in the gross job flows literature

is the definition of a small business. This article presents its statistics

using BLS standard size class categories. Users can then aggregate

categories in the manner they wish to for various definitions of the

term small business.

2

 For more information on regression-to-the-mean bias, see Steven

J. Davis, John C. Haltiwanger, and Scott Schuh, Job Creation and

Destruction (Cambridge, MA, MIT Press, 1996), especially chapter 4;

and Milton Friedman, “Do Old Fallacies Ever Die?” Journal of

Economic Literature, December 1992, pp. 2129–32.

3

 For more information about the Business Employment Dynamics

program, see James R. Spletzer, R. Jason Faberman, Akbar Sadeghi, David

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

Monthly Labor Review, April 2004, pp. 29–42. The Business Employment

 Dynamics program website is www.bls.gov/bdm.

4

 A technical point warrants mention. Establishment births in June

2000 are not in the database in March 2000, and establishment deaths

are not in the database in June 2000. Thus, base-size employment is

defined for openings as of June 2000, and end-size employment is

defined for closings as of March 2000. To calculate the mean size of

openings and closings, employment in the quarter in which the unit

was not present was set to zero.

5

 This finding of monotonically declining (not seasonally adjusted)

net employment growth rates does not hold for the other quarters in

calendar-year 2000.

6

 For further analysis and discussion of this topic, see Spletzer and

others, “Business Employment Dynamics.”

Table 4.

Level Percent

 Net Gross Gross Net Gross Gross

 employment job job employment job job

 growth gains losses growth1 gains1 losses1

Base size class

 Total ........................................ 3,443,287 8,790,144 5,346,857 3.2 8.0 4.9

 1 to 4 ............................................ 900,305 1,444,044 543,739 15.7 25.1 9.5

 5 to 9 ............................................ 466,266 1,076,583 610,317 7.0 16.1 9.1

 10 to 19 ........................................ 463,908 1,122,870 658,962 5.6 13.6 8.0

 20 to 49 ........................................ 545,307 1,348,045 802,738 4.6 11.3 6.7

 50 to 99 ........................................ 292,469 819,127 526,658 3.2 9.0 5.8

 100 to 249 .................................... 262,919 835,774 572,855 2.3 7.3 5.0

 250 to 499 .................................... 95,606 481,083 385,477 1.2 6.0 4.8

 500 to 999 .................................... 60,013 374,043 314,030 .8 4.9 4.2

 1,000 or more ............................... 356,494 1,288,575 932,081 .9 3.2 2.3

Mean size class:

 Total ............................................ 3,443,287 8,790,144 5,346,857 3.2 8.0 4.9

 1 to 4 ............................................ 371,470 1,125,150 753,680 7.0 21.3 14.3

 5 to 9 ............................................ 373,917 1,027,239 653,322 5.6 15.5 9.8

 10 to 19 ........................................ 440,855 1,092,129 651,274 5.3 13.2 7.8

 20 to 49 ........................................ 592,654 1,358,373 765,719 4.9 11.3 6.4

 50 to 99 ........................................ 405,560 892,330 486,770 4.4 9.7 5.3

 100 to 249 .................................... 377,365 928,021 550,656 3.3 8.0 4.8

 250 to 499 .................................... 184,312 539,231 354,919 2.3 6.7 4.4

 500 to 999 .................................... 167,395 453,464 286,069 2.2 5.9 3.7

 1,000 or more ............................... 529,759 1,374,207 844,448 1.3 3.4 2.1

End size class:

 Total ............................................ 3,443,287 8,790,144 5,346,857 3.2 8.0 4.9

 1 to 4 ............................................ -192,603 769,315 961,918 –3.5 14.1 17.7

 5 to 9 ............................................ 294,722 941,674 646,952 4.5 14.5 10.0

 10 to 19 ........................................ 454,028 1,089,876 635,848 5.6 13.4 7.8

 20 to 49 ........................................ 666,578 1,431,125 764,547 5.6 12.0 6.4

 50 to 99 ........................................ 476,697 960,106 483,409 5.2 10.5 5.3

 100 to 249 .................................... 496,900 1,024,722 527,822 4.3 8.8 4.5

 250 to 499 .................................... 279,105 591,823 312,718 3.5 7.4 3.9

 500 to 999 .................................... 243,537 489,258 245,721 3.2 6.4 3.2

 1,000 or more ............................... 724,323 1,492,245 767,922 1.8 3.7 1.9

1 Calculated with mean-quarter employment in the denominator.

 Number of employees

Table 4. Firm-level gross job flows, by size class, March 2000 to June 2000