BDS Overview
Business Dynamics Statistics include measures of establishment openings and closings, firm startups, job creation and destruction by firm size, age, and industrial sector, and several other statistics on business dynamics. The BDS has some elements that are similar to the Bureau of Labor Statistics Business Employment Dynamics (BED) and the Census Bureau’s Statistics on U.S. Business (SUSB) programs. However, the BDS provides the first publicly available tabulations of job creation by firm size and age taking advantage of the unique aspects of the Longitudinal Business Database (LBD).
Purpose
The U.S. economy is comprised of over 6 million establishments with paid employees. The population of these businesses is constantly churning --some businesses grow, others decline and yet others close. New businesses are constantly replenishing this pool. The BDS series provide annual statistics on gross job gains and losses for the entire economy. These data track changes in employment at the establishment level, and thus provide a picture of the dynamics underlying aggregate net employment growth.
Sources
The microdata used to construct the BDS are from the Center for Economic Studies' LBD. These data include nearly all non-farm private establishments with paid employees as well as some public sector activities (Jarmin and Miranda, 2002). The LBD contains information from a variety of sources including the Business Register, Economic Censuses and surveys. The longitudinal linkages in the LBD rely on only one source: the Business Register. Since 1972, the U.S. Census Bureau has maintained a general-purpose Business Register for use by the federal statistical system. The Business Register is a database of U.S. business establishments and companies. An establishment is a fixed physical location where economic activity occurs. A firm may have one establishment (a single unit establishment) or many establishments (a multi-unit firm). Firms are defined at the enterprise level such that all establishments under the operational control of the enterprise are considered part of the firm. The Business Register is continuously updated with administrative data from other federal agencies, as well as data collected by the Census Bureau. Information for single establishments and EINs is updated based on payroll tax records from the Internal Revenue Service (IRS). Information for establishments of multi-unit companies is updated annually based on responses to the Company Organization Survey. Other routine sources of update information include Census Bureau current surveys (e.g. Annual Survey of Manufactures) and the economic census.
Data Available
The first release of BDS data covers the period from 1976 through 2005. There will be subsequent yearly updates based on changes over comparisons of consecutive two-year periods.
Uses
There is a longstanding interest in the contribution of small businesses to job and productivity growth in the U.S. Some recent research suggests that it is business age rather than size that is the critical factor (see, e.g., Davis and Haltiwanger (1999) and Haltiwanger (2006)). The BDS permits exploring the respective contributions of both firm age and size.
One key advantage of the LBD is that business dynamics at both the firm and establishment level can be tracked, measured and analyzed. For example, when a new establishment is opened the LBD indicates whether the new establishment belongs to a new firm or is part of an existing multi-establishment firm . Another advantage is that the LBD is based on data going back through 1976. This allows business dynamics to be tracked, measured and analyzed for young firms in their first critical years as well as for more mature firms including those that are in the process of reinventing themselves in an ever changing economic environment.
These data can help economists, policy-makers, and the business community develop a more complete understanding of the dynamics of employment over the business cycle and the contribution of businesses of different age and size.
Concepts and Methodology
The BDS data measure the net change in employment at the establishment level. These changes come about in one of four ways. A net increase in employment can come from either opening establishments or expanding establishments. A net decrease in employment can come from either closing establishments or contracting establishments.
Gross job gains include the sum of all jobs added at either opening or expanding establishments. Gross job losses include the sum of all jobs lost in either closing or contracting establishments. The net change in employment is the difference between gross job gains and gross job losses.
The formal definitions of employment changes are as follows:
Job Creation (JC): Job creation is the sum of all employment gains from expanding establishments from year t-1 to year t including establishment startups. Note that the contribution of firm births can be measured by using the job creation from establishments with firm age equal to 0.
Job Destruction (JD): Job destruction is the sum of all employment losses from contracting establishments from year t-1 to year t including establishments shutting down.
Some simple identities are useful to note to interpret and use these statistics. Let
be employment in year t for establishment i. Define establishment-level employment growth as follows:
where
This growth rate measure has become standard in analysis of establishment and firm dynamics because it shares some useful properties of log differences but also accommodates entry and exit. (See Davis, Haltiwanger and Schuh [1996], and Tornquist, Vartia, and Vartia [1985]). The above definitions of JC and JD for establishments classified in group s (e.g., a firm size, firm age category) are given by:
The net change in employment for establishments in group s satisfies the following identity:
For growth rates, the analogous relationships are given by:
where
The latter variable
denotes the sum of average employment over a consecutive two-year period and as is clear from the above it is simple to convert the changes to rates by dividing the relevant measures by this variable. Note that in general the variable 
for a particular classification is not equal to the simple average of the employment variable using the current and prior year since establishments are assigned the characteristics of the firm that owns the establishment in t and this may have changed from year t-1 to year t .
The employment measure used for the tabulations is the number of employees at the establishment for the payroll period including March 12. As such, all growth rates are based on March-to-March changes and the tabulations for a given year are the changes from the prior year to the current year. An establishment opening or entrant is an establishment with positive employment in the current year and zero employment in the prior year. An establishment closing or exit is an establishment with zero employment in the current year and positive employment in the prior year. The vast majority of establishment openings are true greenfield entrants. Similarly, the vast majority of establishment closings are true establishment exits (i.e., operations ceased at this physical location). However, there are a small number of establishments that temporarily shutdown (i.e., have a year with zero employment) and these are counted in the establishment openings and closings.
In the released series, the job flow measures are provided in terms of both level changes (e.g., the number of jobs) as well as rates using the above denominator as described above to covert level changes to rates. In addition, the number of establishments in each of the categories of change (openings, closings, continuers) and the classifications (e.g., firm size, firm age, etc.) is provided which permits tracking the gross and net flows of the number of establishments. The decomposition into openings, closings and continuers permits decomposing gross job creation into the component from continuing establishments that are expanding and establishment openings and decomposing gross job destruction into the component from continuing establishments that are contracting and establishment closings.
It is critical to emphasize that the BDS contains measures of net and gross flows of establishments and jobs at the establishment level. All establishments are, however, linked to their parent firm so that the net and gross flows of establishments and jobs can be categorized by the characteristics of the parent firm. In particular, establishments are classified by both the size of the parent firm and age of the parent firm as defined below. This enables quantifying the contribution of firms by firm size and firm age in terms of establishment and job net and gross flows. For example, and of particular interest, the contribution of firm startups to the net and gross flows of establishments and jobs can be ascertained by using the tabulations of firm age zero. As described in detail below, establishments are assigned a firm age based upon the age of the parent firm. The age of the parent firm is based on the age of the oldest establishment in the firm. A firm age of zero represents a firm where all establishments in the firm are entrants in that year -- hence it is a new firm. By construction, tabulations of firm age zero represent establishment entrants that are part of a new firm. Most new firms are single-unit firms.
Glossary
Firm Size (FSIZE): This categorical variable classifies establishments by firm size. Firm size is defined as the average of year t-1 and year t employment.
Firm size categories are:
| a) | 1 to 4 |
| b) | 5 to 9 |
| c) | 10 to 19 |
| d) | 20 to 49 |
| e) | 50 to 99 |
| f) | 100 to 249 |
| g) | 250 to 499 |
| h) | 500 to 999 |
| i) | 1000 to 2499 |
| j) | 2500 to 4999 |
| k) | 5000 to 9999 |
| l) | 10000+ |
Initial Firm Size (IFSIZE): This categorical variable classifies establishments by initial firm size. Firm size is defined for any given consecutive two-year period as the size at year t-1 except in cases when year t-1 employment is equal to zero in which case initial size is year t employment. Initial Firm Size categories are identical to those for Firm Size.
Firm Age (FAGE4): Both establishment and firm age are computed from the data (see Jarmin, 2002). Birth year is defined as the year an establishment first reports positive employment in the LBD. Establishment age is computed by taking the difference between the current year of operation and the birth year. Given that the LBD series starts in 1976 observed age is by construction left censored at 1975.
Firm age is computed for all firms in the LBD from the age of the establishments belonging to that particular firm. A firm is assigned an initial age by determining the age of the oldest establishment that belongs to the firm at time of birth. Firm age accumulates with every additional year after that. Note that mergers and acquisitions and divestitures could lead to abrupt changes in firm age purely from establishment composition issues if we defined firm age in each year using age of the oldest establishment owned in that year.
Firm Age Categories are:
| a) | 0 |
| b) | 1 |
| c) | 2 |
| d) | 3 |
| e) | 4 |
| f) | 5 |
| g) | 6 to 10 |
| h) | 11 to 15 |
| i) | 16 to 20 |
| j) | 21 to 25 |
| k) | 26+ |
| l) | Left Censored |
STATE (STATE): This categorical variable classifies establishments by the state in which the establishment resides. These are Federal Information Processing Standards (FIPS) codes developed by the National Institue of Standards and Technology (NIST). Outlying territories (Puerto Rico, Guam, etc) are not included in the BDS.
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Last Modified Date: September 22, 2008