Business Dynamics Statistics

Tracking Annual Changes in Employment for Growing and Shrinking Businesses

There are more than 6 million establishments with paid employees in the United States. These businesses are dynamic: opening and closing, adding and losing employees.

Funded by the Kauffman Foundation, in collaboration with the U.S. Census Bureau’s Center for Economic Studies, the Business Dynamics Statistics is a data series that allows users to track the annual changes in employment for growing and shrinking businesses at the establishment level.

The BDS monitors this activity, tracking annual job creation and destruction at the establishment level using elements not found in similar databases, such as firm age and size. Tracking by firm age, for example, allows users to distinguish between new establishments of new firms and new establishments of mature firms. These statistics are crucial to understanding current and historical entrepreneurial activity in the U.S.

A number of key economic data items are tabulated by the Business Dynamics Statistics, including number of establishments, establishment openings and closings, employment, job creation and destruction, and job expansions and contractions. The information is compiled from a database of establishments and firms tracked over time known as the Longitudinal Business Database.

Analysts and policymakers need to understand business activity and the process of job creation to enable informed decision making. One novel feature of the BDS is that the activity of young entrepreneurial businesses can be comprehensively tracked by industry, state and over time.

The Business Dynamics Statistics provide annual statistics from 1976 to 2005 by firm age and size. Annual files are also provided at the state level for Standard Industrial Classification sectors and for the economy as a whole.

Findings from the Business Dynamics Statistics include:

• States differ substantially in the creation and establishment of new businesses. States with higher entrepreneurial activity are in the West and Southwest, with as much as 12 percent of employment accounted for by young firms (less than 3 years old). In contrast, states with low entrepreneurial activity are in the East and Midwest, and have about 6 percent of employment accounted for by young firms.
• Establishments owned by younger firms grow faster, on average, than those owned by older firms. However, many young firms close shortly after they open, so the job destruction rate is also higher for establishments owned by younger firms. Hence, BDS shows the pattern for young businesses is one of “up or out,” with rapid net growth for survivors balanced by a high exit rate.
• The BDS shows that the fraction of employment accounted for by business startups in the U.S. private sector over the 1980-2005 period is about 3 percent per year. This exceeds the 1.8 percent average annual net employment growth. This pattern implies that job destruction exceeds job creation at existing businesses and highlights the importance of business startups for job creation in the U.S. economy.

Reports using data from the Business Dynamics Statistics: