Monthly Labor Review April 2001 13

Measuring Jobs, Establishment Flows

Measuring job and establishment

flows with BLS longitudinal microdata

A forthcoming BLS database is capable

of generating high-quality, timely information

on job creation, job destruction,

and the life cycle of establishments

Timothy R. Pivetz,

Michael A. Searson,

and

James R. Spletzer

Timothy R. Pivetz is

Chief of State

Operations, and

Michael A. Searson is

Chief of Business

Establishment List, in

the Covered Employment and Wages

Program, and James

R. Spletzer is a

research economist,

Office of Employment

Research and

Program

Development, Bureau

of Labor Statistics.

The relatively recent development of longitudinal establishment data sets has generated considerable excitement in both the

academic and the statistical communities. The

descriptive statistics coming out of these data

sets illustrate the large amount of volatility at the

individual establishment level that underlies the

smooth time series of aggregate employment

growth. This finding not only has stimulated the

review and updating of existing labor market theories, but also has motivated U.S. statistical agencies to produce longitudinal job flow statistics

from their administrative data sets. This article

describes a new longitudinal database from the

Bureau of Labor Statistics that has the potential

for enhancing microdata research into topics such

as job creation, job destruction, and the life cycle

of establishments.

The literature on the demand for labor in general and on gross job flows in particular has flourished during the past decade. Perhaps the most

important finding discussed is the tremendous

heterogeneity in establishment-level employment

changes that is evident in the job creation and

job destruction statistics underlying net employment growth. For example, using data spanning

much of the 1970s and 1980s, Steven J. Davis,

John C. Haltiwanger, and Scott Schuh report that,

on average, 5.5 percent of manufacturing jobs

were destroyed and 5.2 percent created over a 3-

month interval.1

 The –0.3-percent difference between these two statistics is the average net employment growth per quarter.

Despite all that we have learned about the labor market from the aforementioned literature, the

call for better data always resonates. Three aspects of existing data are often mentioned. First,

much of the early work using U.S. data was restricted to the manufacturing sector.2

 Recent research using unemployment insurance data from

various States, however, has illustrated how job

creation and job destruction in manufacturing

may not be representative of other industries.3

Second, the existing empirical work on job flows,

either by choice or by necessity, is largely based

upon data that exclude the smallest establishments. Small plants with fewer than five employees, for example, are not in the sample frame of

the Annual Survey of Manufactures used by

Davis and Haltiwanger,4 manufacturing plants

with fewer than five employees from the Census

of Manufactures are excluded from Timothy

Dunne, Mark J. Roberts, and Larry Samuelson's

analysis,5 and the sample used by Patricia M.

Anderson and Bruce D. Meyer includes only

firms with at least 50 employees.6 Finally, many of

the existing studies use annual data, whereas the

ideal data for studying gross job flows would be

quarterly or perhaps even monthly. Data at these

high frequencies are necessary for analyzing seasonal patterns in employment growth or for analyzing the short-run employment growth immediately following business “birth” and immediately

preceding business “death.”

The longitudinal database introduced in this

article is not subject to any of the three limitations just mentioned. The microdata from which

the database is constructed are the unemployment insurance reports that employers in the

United States are required to file with the States.
14 Monthly Labor Review April 2001

Measuring Jobs, Establishment Flows

These data are essentially a quarterly census of establishments in all industries, which implies that the job creation and

job destruction statistics derived from the longitudinal database have the potential to be valuable economic indicators

published by statistical agencies of the U.S. Government.

In the next section, job creation and job destruction are

defined, and the relation between these new statistics and

those already published by the Bureau of Labor Statistics is

described. Following that, a detailed description is given of

the unemployment insurance microdata and the construction

of the longitudinal data set. Because it is desirable to distinguish among establishments that are expanding, contracting,

opening, and closing, special attention is given to the longitudinal linkage algorithm used to minimize the incidence of

spurious births and deaths. In the final section of the article,

several tables are presented that highlight job creation and

job destruction statistics across industries.

Concepts and definitions

The cross-sectional, or “snapshot,” employment statistics that

are published by the Bureau of Labor Statistics are invaluable to

policymakers, researchers, and the business community. However, comparing aggregate employment levels at two points in

time only states the net change in employment and does not

inform us either of how many establishments are expanding or

contracting or by how much they are expanding or contracting.

This state of affairs is easily illustrated.

Suppose that payroll employment was 108.2 million jobs in

September 1999 and 109.2 million jobs in December 1999. Then

net employment grew by 1 million jobs during the quarter.

This net figure is consistent with many scenarios, including

any of the following three: (1) one million jobs were created

and none were destroyed, (2) 9 million were created and 8

million were destroyed, and (3) 109.2 million were created and

108.2 million were destroyed. The first scenario illustrates a

labor market in which no employer decreased the size of his or

her establishment and all employment growth is attributable

to establishments either opening or expanding. The third scenario illustrates a labor market in which all establishments in

the previous quarter shut down and all establishments in the

current quarter started up. The true underlying labor market

is, of course, somewhere in between these two extreme cases;

the second scenario illustrates one possible intermediate case.

Net employment growth is nothing more than a comparison of cross-sectional employment at two points in time: how

many more jobs exist at the latter period compared with the

earlier one. Thinking about how this net employment growth

might have occurred indicates that, in all likelihood, some

establishments have expanded, some have contracted, some

have opened, and some have closed. Job creation is defined

as the employment growth contributed by establishments that

ployment decline resulting from establishments that contract

or shut down. The sum of job creation and job destruction is

the net change in employment. It is obvious that longitudinal

microdata at the establishment level are required to decompose net employment change into its components of job

creation and job destruction. The desire to achieve this decomposition is one of the motivations for the longitudinal

establishment database being developed by the Bureau.

It is informative to present job creation and job destruction

statistics as rates as well as a count of the number of jobs. Let

Etdenote aggregate employment in quarter t, let e index establishments, define S+ as the sector of expanding and opening

establishments, and define S– as the sector of contracting and

closing establishments. Then net employment growth over

the quarter is Et – Et–1, and the quarterly net employment

growth rate is written as

 .

In accordance with the previous definition of job creation, the

quarterly job creation rate is defined as

 .

Similarly, following the previous definition of job destruction,

the average quarterly job destruction rate is defined as

 .

As is evident in the preceding equations, the mean of employment in the current and the previous quarter is the measure of employment in the denominator when one converts

employment levels into rates. The reason for this is that the

Bureau will be publishing job creation and destruction rates

by employment size class, an approach that introduces certain statistical issues. As noted by Davis, Haltiwanger, and

Schuh, defining “size according to base-year employment

leads to a regression fallacy, which in turn paints an overly

favorable picture of the relative job growth performance of

small employers.”7

The difficulties faced in using the base year in the denominator of a growth rate can, again, be illustrated. Suppose that

an establishment grows from one employee to two and then

reverts to one employee. Using employment in the previous

quarter in the denominator, one finds that the growth rate in

the first quarter is 100 percent (2 minus 1, divided by 1) and

the growth rate in the second quarter is –50 percent (1 minus

2, divided by 2). By contrast, if we use average employment

across two quarters in the denominator, the growth rate in

the first quarter is 67 percent (2 minus 1, divided by 1.5), and

the growth rate in the second quarter is –67 percent (1 minus

2, divided by 1.5). This simple example illustrates how using

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expand or start up, and job destruction is defined as the em-

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Monthly Labor Review April 2001 15

the average of the current and previous quarters’ employment in the denominator portrays expansion and contraction symmetrically.

The longitudinal microdata

Data sources and definitions. The source of the establishment microdata used for constructing the new BLS longitudinal

database (often referred to as the LDB) is the quarterly unemployment insurance microdata. All employers subject to State

unemployment insurance laws are required to submit quarterly reports detailing their monthly employment and quarterly wages to the State Employment Security Agencies. After the microdata are edited and, if necessary, corrected by

the State labor market information staff, the States submit

these data and other business identification information to

the Bureau of Labor Statistics as part of the Covered Employment and Wages program (ES–202), which is a cooperative

endeavor of the Bureau and the States. The data gathered in

the ES–202 program are a comprehensive and accurate source

of employment and wages and provide a virtual census (covering 98 percent) of employees on nonfarm payrolls. According to Employment and Wages, an annual publication

of the Bureau, in 1999 employers in private industry provided

State Employment Security Agencies with quarterly unemployment insurance tax reports for an average of 107.6 million

wage and salary workers in approximately 7.6 million business

establishments.8

Several definitions deserve mention. An establishment is

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 to which a Standard Industrial Classification (SIC) code is applicable. The code assigned to an

establishment is based on its primary activity, which is determined by the primary product or groups of products the establishment produces or distributes (or the services the establishment renders). Employers report employment and wages on an

individual establishment basis. Multiple Worksite Reports are

used to collect separate employment and wage data for each

establishment owned by employers with multiple locations

within a State.

Employment for a given month is the number of covered

workers (whose wages are subject to unemployment insurance taxes) who earned wages during the pay period that

includes the 12th of the month. The quarterly unemployment

insurance microdata contain information on monthly employment. The publications from the longitudinal database will

use employment in the 3rd month of the quarter as the measure of an establishment's quarterly employment. This decision was made because comparisons between specific points

in time are easier to interpret than are comparisons of quarterly averages. The averaging of monthly employment within

a quarter distorts the timing of when changes in employment

actually occurred, especially when an establishment shuts

down. Furthermore, monthly employment flows constructed

from data reported quarterly might be affected by unknown

problems such as quarterly seam effects and other forms of

recall bias—this is, accordingly, an area for further research.

Construction of longitudinal microdata. The Bureau of Labor Statistics uses two sets of information to match establishments across quarters. The first is the State Employment Security Agencies' identification number (SESA-ID), which is the

unemployment insurance account number in combination with

the establishment's reporting unit number. The SESA-ID is the

establishment's unique identifier that the State Employment

Security Agencies transmit to the Bureau. Although the reporting unit number is not used in the administration of the

Unemployment Insurance system, it is still assigned by the

State (through information collected in Multiple Worksite

Reports) to satisfy the BLS purpose of identifying establishments within a multiestablishment employer in each State.

Two other pieces of information in the unemployment insurance microdata that are used for longitudinal linking are

the predecessor and successor numbers. The predecessor

number is the SESA-ID of the establishment that previously

owned the given establishment, in the event of either a change

in ownership or a change in reporting configuration (that is, a

breakout of units). The successor number is the SESA-ID of

the establishment that will take over the given establishment

in the event of either a change in ownership or a change in

reporting configuration (that is, a consolidation of units). The

term breakout refers to a transition from a single-establishment employer to a multiestablishment employer, and the term

consolidation refers to a transition from a multiestablishment

employer to a single-establishment employer. Breakouts and

consolidations may be actual economic events representing

business expansions and contractions or merely administrative reporting changes stemming from whether or not the business completes the Multiple Worksite Report.

In addition to matching on SESA-ID and matching on predecessor and successor numbers both within and across quarters, another step undertaken to link establishment-level

microdata across quarters is a probability-based statistical

match that attempts to identify two establishments with different SESA-IDs as continuous. This match is based upon comparing births in the current quarter with deaths in the previous quarter and looking for occurrences such as the same

name, the same address, the same phone number, and so forth.

Almost all of the establishments identified as continuous from

quarter to quarter are matched by SESA-ID (between 95 and 97

percent each quarter). Although the predecessor-successor

match and the probability-based match link only a relatively
16 Monthly Labor Review April 2001

Measuring Jobs, Establishment Flows

small number of establishments, both matches have a significant effect on the number of births and deaths.9

Establishment classifications. The following definitions are

used to identify the status of establishments in the LDB tables:

A business expansion is defined as a transition of a previously operating establishment—one that had positive employment (greater than zero) in the 3rd month of the preceding

quarter—to a higher level of positive employment in the current quarter. A business opening is defined as either a transition of an establishment from an employment level of zero to

an employment level greater than zero or an establishment

appearing for the first time with positive employment. Openings are counted only in the unit totals for the quarter in which

an establishment first appears with positive employment. A

business contraction is defined as a transition of a previously

operating establishment wherein the establishment decreases

its 3rd-month employment between two periods of time and

the employment in the latter quarter is greater than zero. A

business closing is defined as either a transition of an establishment from an employment level greater than zero to zero or

an establishment with positive employment disappearing from

the file with no link to the subsequent quarter. Closings are

not counted in the unit totals for the quarter in which the

establishment reports zero employees, but are counted for the

quarterly comparison.

It is not possible for the LDB system to define business

deaths on a contemporaneous basis. Businesses in the Unemployment Insurance system are allowed to, and often do,

report zero employment for several quarters after they have

effectively closed. This undoubtedly occurs when a business

owner temporarily shuts down, but anticipates starting up the

business again when economic conditions improve. By reporting zero employment and zero wages on the quarterly

contributions form, the business owner can keep his or her

unemployment insurance account active. This practice results

in many observed business closings, but which establishments will start up again and which will remain closed is not

observed for several more quarters.

Although deaths cannot be defined contemporaneously, we

can define births and deaths in the historical data. A business

birth is defined as an establishment for which no predecessor in

any previous period is identified that achieves nonzero employment for the first time. Births are a subset of openings. Likewise,

a business death is defined as an establishment that, over

some period of time, either ceases reporting with no successor identified or decreases employment from positive to zero

and does not resume operations (report positive employment)

during the subsequent four quarters. Deaths are a subset of

closings.

Note that the employment numbers tabulated from the LDB

will be slightly below the summary statistics released by the

ES–202 program. As a result of the record linkage process,

two types of records are deleted: (1) imputed current-quarter

single records whose prior-quarter mates find better matches

to other records in the current quarter and (2) the predecessor

halves of intraquarter matches after merging with their successors. The differences caused by these deletions have not

been quantified yet, but they should be small. Furthermore,

certain establishments are excluded from forthcoming BLS

publications of job creation and destruction statistics and

hence also are excluded from the tables presented in the next

section. These establishments either fall under SIC 8811 (private household workers), are not in the private sector (that is,

they are Federal, State, local, or foreign government establishments), or are located in Puerto Rico or the Virgin Islands.

First results

Basic results. The following tabulation presents employment levels for September 1999 and December 1999, as well as

the quarterly flows in between these 2 months:

Percent

Level change

Employment:

 September 1999 ......................... 108,171,968 ...

 December 1999 .......................... 109,185,909 ...

Change .................................. 1,013,941 0.9

Job creation:

 Total .......................................... 9,018,416 8.3

Expanding establishments ....... 7,194,722 6.6

Opening establishments .......... 1,823,694 1.7

Job destruction:

 Total .......................................... 8,004,475 7.4

Contracting establishments ..... 6,296,869 5.8

Closing establishments ........... 1,707,606 1.6

The first column of the tabulation, of course, presents employment counts; the second column presents rates, with the

denominator an average computed from the two quarters. For

the U.S. private-sector economy, there were 108,171,968 jobs

in September 1999 and 109,185,909 jobs in December of that

year. Thus, employment grew by 1,013,941 jobs between the

third and the fourth quarters. Converted to percentage terms,

net employment growth between September and December

1999 was 0.9 percent.

Employment in expanding establishments grew by 7,194,722

jobs, and employment in opening establishments grew by

1,823,694 jobs. Employment in contracting establishments

declined by 6,296,869 jobs, and closing establishments accounted for the loss of 1,707,606 jobs. The vector sum of

these four counts is the net employment growth of 1,013,941

jobs.
Monthly Labor Review April 2001 17

 It is sometimes more useful to express these job flows as

percentages rather than levels. Accordingly, as the second

column of the tabulation shows, the job creation rate in the

U.S. private-sector economy between September and December 1999 was 8.3 percent and the job destruction rate was 7.4

percent. These statistics imply that the jobs created by opening establishments and expanding establishments are 8.3 percent of the total number of jobs and the jobs destroyed by

closing establishments and contracting establishments are

7.4 percent of the total number of jobs. The 0.9-percent difference between the job creation and job destruction rates is the

net employment growth rate between the third and fourth

quarters of 1999.

Job creation is the employment gain from expanding establishments and opening establishments. Expanding establishments account for 79.8 percent of quarterly job creation, whereas opening establishments account for 20.2

percent of quarterly job creation. Similarly, contracting establishments account for 78.7 percent of quarterly job destruction, whereas closing establishments account for 21.3

percent of quarterly job destruction. These statistics are

similar to the birth and death statistics presented by James

R. Spletzer, who used historical data from West Virginia to

show that births and deaths account for slightly less than

20 percent of job creation and job destruction on a quarterly basis.10

The establishment counts underlying the preceding job creation and job destruction statistics are given in the following

tabulation:

Percent

Level change

Establishments:

 September 1999 ......................... 6,158,342 ...

 December 1999 .......................... 6,228,999 ...

 Change .................................. 70,657 1.1

Job-creating establishments:

 Total .......................................... 1,919,122 31.0

Expanding establishments ....... 1,541,283 24.9

Opening establishments .......... 377,839 6.1

Job-destroying establishments:

 Total .......................................... 1,720,373 27.8

Contracting establishments ..... 1,413,191 22.8

Closing establishments ........... 307,182 5.0

There were 6,158,342 establishments with positive employment in September 1999 and 6,228,999 in December 1999, an

increase of 70,657 establishments, or a 1.1-percent growth rate.

There were 1,541,283 establishments (24.9 percent of all establishments) expanding during the quarter and 1,413,191 (22.8

percent) contracting during the quarter. During the same quarter, 377,839 establishments (6.1 percent) opened and 307,182

establishments (5.0 percent) closed. The 2.9 million estabments that did not change their employment between September and December are not included in the tabulation.

Combining the statistics from the two tabulations to compute the ratios of means reveals that the average expanding

establishment is adding 4.7 jobs per quarter and the average

contracting establishment is losing 4.5 jobs per quarter. Also,

the average opening establishment starts with 4.8 employees

in its first quarter of positive employment, and the average

closing establishment is responsible for the loss of 5.6 employees in its final quarter with employees.

How do these longitudinal statistics expand on current BLS

labor market statistics? The September and December 1999

data for employment and establishments are similar to the

cross-sectional or "snapshot" statistics that are currently

available from the Bureau. These data tell us that employment

grew at a rate of 0.9 percent over the quarter and the number

of establishments grew at a rate of 1.1 percent between September and December. The net employment growth of 1,013,941

jobs is the result of employment growth from a set of 1,919,122

establishments that added 9,018,416 new jobs, combined with

employment losses from a set of 1,720,373 establishments that

lost 8,004,475 jobs. Similarly, the net growth of 70,657 establishments between September and December is the result of

377,839 new establishments opening and 307,182 existing establishments closing. These large gross flows that underlie

the substantially smaller net flows are not captured in the

cross-sectional statistics.

So what do the data presented in the tabulations tell us

about the economy? The main thing they reveal is the tremendous amount of heterogeneity underlying the net growth rates.

The sum of job creation and job destruction, which is 15.7

percent of all jobs, tells us that more than 1 in 7 jobs were

either created or destroyed during the period from September

1999 to December 1999. In particular, 8.3 percent of jobs that

existed in December did not exist in September, and 7.4 percent of jobs that existed in September did not exist in December. In addition, 31 percent of establishments added jobs during the 3-month period, and 27.8 percent of establishments

decreased their employment during the period. These job creation and job destruction statistics demonstrate that a sizable

number of jobs and businesses appear and disappear in the

short time frame of 3 months.

Results by industry. The quarterly job creation and job destruction statistics for each of the major industries are presented in tables 1 and 2, and the quarterly establishment flows

by industry are given in tables 3 and 4. Ignoring unclassified

establishments, one immediately sees that the job creation

and job destruction rates in agriculture and construction are

the highest of all industries. This result has also been found

by others.11 One immediate explanation is the substantial seasonality of employment in those industries.
18 Monthly Labor Review April 2001

Measuring Jobs, Establishment Flows

Quarterly employment levels and flows, by industry, September 1999 to December 1999

Employment Job creation Job destruction

September December Expanding Opening Contracting Closing

1999 1999 establishments establishments establishments establishments

 Total ............................................. 108,171,968 109,185,909 1,013,941 7,194,722 1,823,694 6,296,869 1,707,606

Agriculture, forestry, and fishing ......... 2,037,815 1,722,840 –314,975 202,361 64,762 479,383 102,715

 Mining.................................................. 530,982 528,569 –2,413 26,991 6,747 30,130 6,021

Construction ........................................ 6,613,828 6,428,999 –184,829 561,133 151,194 729,576 167,580

 Manufacturing ..................................... 18,510,755 18,441,768 –68,987 690,224 106,716 732,317 133,610

Transportation and public utilities ........ 6,641,545 6,740,689 99,144 393,520 77,054 289,362 82,068

 Wholesale trade .................................. 6,928,158 6,993,858 65,700 386,250 98,356 326,489 92,417

Retail trade .......................................... 22,914,513 23,866,027 951,514 2,130,887 450,467 1,214,466 415,374

Finance, insurance, and real estate .... 7,401,138 7,441,430 40,292 350,074 103,746 311,046 102,482

Services .............................................. 36,352,934 36,621,305 268,371 2,426,794 570,673 2,156,547 572,549

Unclassifiable establishments ............. 240,300 400,424 160,124 26,488 193,979 27,553 32,790

Industry

Quarterly establishment levels and flows, by industry, September 1999 to December 1999

Establishments Job-creating establishments Job-destroying establishments

September December Expanding Opening Contracting Closing

1999 1999 establishments establishments establishments establishments

 Total ................................................ 1.1 31.0 24.9 6.1 27.8 22.8 5.0

Agriculture, forestry, and fishing .......... –4.9 25.8 20.1 5.6 45.0 34.5 10.5

 Mining .................................................. .9 27.9 23.1 4.7 28.5 24.7 3.8

Construction ......................................... –.4 31.4 24.3 7.1 34.9 27.4 7.5

 Manufacturing ..................................... .0 34.7 31.5 3.3 32.7 29.5 3.3

 Transportation and public utilities ........ .0 29.8 24.8 5.0 28.2 23.1 5.1

 Wholesale trade .................................. .7 25.8 21.0 4.7 22.6 18.6 4.0

 Retail trade ......................................... –.4 35.8 31.8 4.0 30.4 26.1 4.4

 Finance, insurance, and real estate ... 1.4 24.2 18.6 5.6 21.3 17.2 4.2

Services ............................................... 1.4 29.4 23.3 6.0 25.3 20.6 4.7

 Unclassifiable establishments ............. 49.5 72.6 11.8 60.8 20.4 9.1 11.3

Industry Change

Change

Table 3.

Quarterly employment flows, by industry, September 1999 to December 1999

Job creation Job destruction

Total Expanding Opening Total Contractions Closings

 establishments establishments

Net

change Industry

Table 2.

 Total ............................................ 6,158,342 6,228,999 70,657 1,541,283 377,839 1,413,191 307,182

Agriculture, forestry, and fishing .......... 171,516 163,379 –8,137 33,737 9,396 57,815 17,533

 Mining.................................................. 23,728 23,943 215 5,510 1,132 5,888 917

Construction ......................................... 611,178 608,947 –2,231 147,973 43,430 167,156 45,661

 Manufacturing ..................................... 371,239 371,179 –60 116,895 12,066 109,386 12,126

 Transportation and public utilities ........ 274,655 274,558 –97 68,055 13,829 63,412 13,926

 Wholesale trade .................................. 578,553 582,667 4,114 122,195 27,333 108,032 23,219

 Retail trade ......................................... 1,329,964 1,324,659 –5,305 422,682 52,435 346,254 57,740

 Finance, insurance, and real estate ... 581,631 590,102 8,471 108,700 33,001 100,510 24,530

Services ............................................... 2,148,571 2,177,947 29,376 504,988 130,821 446,579 101,445

 Unclassifiable establishments ............. 67,307 111,618 44,311 10,548 54,396 8,159 10,085

 Total ............................................ .9 8.3 6.6 1.7 7.4 5.8 1.6

Agriculture, forestry, and fishing ......... –16.8 14.2 10.8 3.4 31.0 25.5 5.5

Mining .................................................. –.5 6.4 5.1 1.3 6.8 5.7 1.1

Construction ........................................ –2.8 10.9 8.6 2.3 13.8 11.2 2.6

 Manufacturing ..................................... –.4 4.3 3.7 .6 4.7 4.0 .7

Transportation and public utilities ........ 1.5 7.0 5.9 1.2 5.6 4.3 1.2

Wholesale trade ................................... .9 7.0 5.5 1.4 6.0 4.7 1.3

Retail trade .......................................... 4.1 11.0 9.1 1.9 7.0 5.2 1.8

Finance, insurance, and real estate .... .5 6.1 4.7 1.4 5.6 4.2 1.4

Services .............................................. .7 8.2 6.7 1.6 7.5 5.9 1.6

Unclassifiable establishments ............. 50.0 68.8 8.3 60.5 18.8 8.6 10.2

Quarterly establishment flows, by industry, September 1999 to December 1999

Total

Net

change Industry

Job-creating establishments

Table 4.

Table 1.

Expanding Opening Contracting Closing

establishments establishments establishments establishments Total

Job-destroying establishments
Monthly Labor Review April 2001 19

high-frequency, timely, and historically consistent information regarding not only job creation and job destruction, but

also the life cycle of establishments. The Bureau plans to

publish quarterly and annual tables of job creation and job

destruction statistics on the entire U.S. economy, by industry,

by State, and by size and age of firm. These tables will be put

through a nondisclosure review to ensure that the identity of

the establishments is protected. No timetable has been established for the first official release of the new statistics or for

the frequency of their publication.

Job creation and job destruction statistics have the potential to increase our understanding of labor markets. For example, labor market outcomes reflect the interactions of supply and demand, and because of the ready availability of

appropriate microdata, almost all that is known about worker

mobility reflects supply-side considerations such as individual preferences and human-capital acquisition. By contrast, the data on job flows suggest that job opportunities at a

specific employer appear and disappear, which suggests a

major role for demand-side considerations. Another example

is that underlying the gross job flows are gross worker flows,

and an analysis of the relationship between these two types

of flows would further economists' understanding of the

matching process that occurs between employees and employers. Such worker-firm matching is undoubtedly related to

important areas of research, including wage determination,

capital-labor complementarities, and long-term employment

relationships.

The data on job flows will also increase economists’ understanding of industrial organization. Topics such as firm growth

and survival are interrelated with job flows, as firms seek the

set of workers that maximizes profitability, given their product

markets and choices of technology. Haltiwanger, Julia I. Lane,

and Spletzer have found that long-lived employers choose

very different types of workforces and that these choices are

quite persistent over time.12 This finding leads to speculation

about the role of entry and exit and about the dynamics of

how businesses initially choose and evolve toward a particular mix of workers. Job flows have also been found to be a key

component in the study of aggregate productivity growth: L.

Foster, Haltiwanger, and C. J. Krizan have shown that the reallocation of jobs from less efficient to more efficient plants

plays a significant role in such growth.13

Data on job flows also have interesting implications for the

study of macroeconomics. One of the key findings by Davis,

Haltiwanger, and Schuh is that job destruction rates in U.S.

manufacturing exhibit greater cyclical variation than do job

creation rates.14 In particular, recessions are characterized by

a sharp increase in job destruction in manufacturing, accompanied by a relatively mild slowdown in job creation. This

finding has led to several theories of business cycle dynamics that emphasize the “cleansing” effects of recessions, dur-

 The effects of seasonal employment patterns can also be

seen in the large number of jobs added in the retail trade industry. Employment in the industry grew by 4.1 percent during the

fourth quarter of 1999. As shown in table 2, this net employment

growth rate is the result of an 11.0-percent job creation rate and

a 7.0-percent job destruction rate. Furthermore, the statistics in

table 4 illustrate that 35.8 percent of retail trade establishments

expanded or opened during the quarter and 30.4 percent contracted or closed. This heterogeneity is also evident in the construction industry: the quarterly net employment growth rate of

–2.8 percent in the industry was the result of a 10.9-percent job

creation rate and a 13.8-percent job destruction rate. (See table

2.) Moreover, 31.4 percent of establishments in the industry expanded or opened during the quarter, and 34.9 percent contracted or closed. (See table 4.) Thus, in both growing and declining industries, a sizable number of establishments expanded

and a sizable number contracted. The gross job and establishment flows are large relative to the net flows in both growing and

declining industries.

The manufacturing industry stands out in all of the tables.

The lowest job creation and job destruction statistics are in

manufacturing: 4.3 percent and 4.7 percent, respectively. (See

table 2.) As table 4 shows, manufacturing has the lowest rate

of opening and closing establishments (3.3 percent each). The

statistics in table 1 illustrate the fact that the job creation

attributable to openings and the job destruction attributable

to closings exhibit relatively large variations across industries. Ignoring unclassified establishments again, one sees that

the job creation attributable to openings ranges from a low of

13.4 percent [106,716/(106,716 + 690,224)] in manufacturing to a

high of 24.2 percent [64,762/(64,762 + 202,361)] in agriculture and

the job destruction attributable to closings ranges from a low of

15.4 percent [133,610/(133,610 + 732,317)] in manufacturing to a

high of 25.5 percent [415,374/(415,374 + 1,214,466)] in retail trade.

One explanation undoubtedly underlying these statistics is the

average establishment size, which is highest in manufacturing

(approximately 50 employees); it is easy to theorize that it is

more difficult for large establishments to open and close than it

is for smaller establishments.

Future directions

The Bureau of Labor Statistics has constructed a longitudinal

database that contains quarterly employment and wage data

for virtually all business establishments in the United States.

The LDB is the Bureau's sampling frame for establishments

and contains the most current data available, as well as the

entire history of quarterly microdata from 1990 through the

first and second quarters of calendar-year 2000. The LDB enables us to track changes in employment and wages not only

at the macrolevel, but also at the microlevel of the establishment. The database can be used to generate high-quality,
20 Monthly Labor Review April 2001

Measuring Jobs, Establishment Flows

ing which costly reallocation activities can be concentrated

when the value of foregone production is low. A natural question is whether this cyclical asymmetry extends to nonmanufacturing industries. The evidence presented by Foote suggests

that the manufacturing and nonmanufacturing sectors exhibit

systematically different job flow dynamics.15 The job flows data

in the LDB, which are computed from essentially the full universe of establishments, should help economists, policymakers,

and the business community develop a more complete understanding of business cycles.

Notes

ACKNOWLEDGMENT: We wish to acknowledge all those within the BLS

Office of Employment and Unemployment Statistics and Division of

Business Establishment Systems who contributed to the creation of the

Working Paper no. 4492, 1993; and Job Creation and Destruction.

8

 For more information on the ES–202 program, see BLS Handbook

of Methods, Bulletin 2490 (Bureau of Labor Statistics, 1997); and T. E.

Farmer and M. A. Searson, “Use of Administrative Records in the

Bureau of Labor Statistics’ Covered Employment and Wages (ES–202)

Program,” in Proceedings of the Bureau of the Census 1995 Annual

Research Conference (Bureau of the Census, 1995), pp. 198–235.

9

 For a more detailed description of the matching algorithm used for

the LDB, see K. Robertson, L. Huff, G. Mikkelson, T. Pivetz, and A.

Winkler, “Improvements in Record Linkage Processes for the Bureau

of Labor Statistics’ Business Establishment List,” Proceedings for the

1997 Record Linkage Workshop and Exposition (Office of Management and Budget, 1997); and T. Pivetz and H. Chang, “Linking Unemployment Insurance Wage Records to ES–202 Establishment Microdata

to Improve the Accuracy of the BLS’ Longitudinal Business Establishment Database,” paper presented at the 1998 International Symposium on Linked Employer-Employee Data, Washington, DC, 1998.

10 Spletzer, “Establishment Births and Deaths.”

11 Anderson and Meyer, “Job Turnover,” table 12; see also Foote,

“Trend Employment Growth,” and Spletzer, “Establishment Births

and Deaths.”

12 J. C. Haltiwanger, J. I. Lane, and J. R. Spletzer, “Productivity Differences across Employers: The Roles of Employer Size, Age, and Human

Capital,” American Economic Review Papers and Proceedings, May

1999, pp. 94–98; and Wages, Productivity, and the Dynamic Interaction

of Businesses and Workers, NBER Working Paper no. 7994, 2000.

13 L. Foster, J. Haltiwanger, and C. J. Krizan, Aggregate Productivity

Growth: Lessons from Microeconomic Evidence, NBER Working Paper

no. 6803, 1999.

14 Davis, Haltiwanger, and Schuh, Job Creation and Destruction.

15 Foote, “Trend Employment Growth.”

Destruction: Microeconomic Evidence and Macroeconomic Implications,” NBER Macroeconomics Annual (Cambridge, MA, MIT Press, 1990),

pp. 123–68; S. J. Davis and J. C. Haltiwanger, “Gross Job Creation,

Gross Job Destruction, and Employment Reallocation,” Quarterly Journal of Economics, August 1992, pp. 819–63; and T. Dunne, M. J.

Roberts, and L. Samuelson, “Plant Turnover and Gross Employment

Flows in the U.S. Manufacturing Sector,” Journal of Labor Economics,

January 1989, pp. 48–71.

3

 See P. M. Anderson and B. D. Meyer, “The Extent and Consequences of Job Turnover,” Brookings Papers on Economic Activity

(Washington, DC, Brookings Institute, 1994), pp. 177–236; J. Lane,

D. Stevens, and S. Burgess, “Worker and Job Flows,” Economics Letters, April 1996, pp. 109–14; C. L. Foote, “Trend Employment

Growth and the Bunching of Job Creation and Destruction,” Quarterly

Journal of Economics, August 1998, pp. 809–34; and J. R. Spletzer,

“The Contribution of Establishment Births and Deaths to Employment Growth,” Journal of Business and Economic Statistics, January

2000, pp. 113–26.

 4 Davis and Haltiwanger, “Gross Job Creation and Destruction”; and

“Gross Job Creation, Destruction, and Reallocation.”

 5 Dunne, Roberts, and Samuelson, “Plant Turnover.”

 6 Anderson and Meyer, “Job Turnover.”

 7 See S. J. Davis, J. C. Haltiwanger, and S. Schuh, Small Business and

Job Creation: Dissecting the Myth and Reassessing the Facts, NBER

LDB. We thank especially the LDB Systems staff for their assistance in

creating the tables presented in this article.

1

 S. J. Davis, J. C. Haltiwanger, and S. Schuh, Job Creation and

Destruction (Cambridge, MA, MIT Press, 1996).

2

 See S. J. Davis and J. C. Haltiwanger, “Gross Job Creation and