The role of entrepreneurs in the American economy is legendary. One of the unique characteristics of the U.S. economic system is the freedom to start a business relatively easily and quickly. Indeed, one of the engines of growth is the employment and wages generated by new businesses. It is also an economic reality that businesses close frequently. The interplay of business births and deaths is not fully understood with the existing range of economic measures available from U.S. statistical agencies.
The story of entrepreneurship also entails a neverending search for new and imaginative ways to combine the factors of production into new methods, processes, technologies, products, or services. These efforts lead to the growth of new businesses, the decline of less productive ones, and the reallocation of resources from less profitable businesses and establishments to more profitable ones. This process is often referred to as "creative destruction," a concept popularized by the economist Joseph Schumpeter. (1)
This article describes more than 2 years of research and development of concepts and methods. These findings lead towards a greater understanding of the role and dynamics of business formations and business deaths, of business survival, and of the changing contribution of American entrepreneurs. This work is expected to lead to the publication of new data series with quarterly estimates of business births and deaths under the BLS Business Employment Dynamics (BED) program, an outgrowth of the Quarterly Census of Employment and Wages (QCEW) program. In this article, the terms "births" and "deaths" refer to the births and deaths of entire firms or individual establishments. When the word "business" is used in the context of this article, it refers to both establishments and firms. However, establishment births and deaths are the article's main focus.
The BED statistics are based on measurement of "gross job flows." Data development and economic analysis based on job flows are a new approach in labor market analysis that came about primarily through access to the microdata of U.S. business establishments. (2) Over the past decade, researchers utilized data sources such as the QCEW and the Census Bureau's longitudinal database for the manufacturing sector to create a rich body of literature on this subject. (3) Gross job flows are estimated by simply aggregating the net changes in employment at the establishment level. Gross job gains are the sum of all net gains in expanding and opening establishments. Gross job losses, similarly, are the sum of all net losses in contracting and closing establishments. The net change in employment is the difference between gross job gains and gross job losses. Gross job gains and gross job losses are indicative of job churn, and they reflect adjustments made by businesses in response to changes in economic events and conditions.
For the purposes of BED statistics, openings are defined as those establishments that had positive employment for the first time in the third month of the current quarter with no link to the previous quarter, or had positive employment in the current quarter and zero or no employment in the previous quarter. (4) "Zero employment" means that an employment level of zero was reported, whereas "no employment" means that there were not any employment numbers reported at all. In this article, the term "zero employment" is used to mean either zero employment or no employment. According to the BLS definition of openings, openings include both new startups (births) and reopenings of the existing seasonal establishments that reported zero employment in the previous quarter. Closings are defined in an analogous manner. Closings are establishments that reported positive employment in the third month of the previous quarter and zero employment in the current quarter. Closings include establishments that go out of business permanently (deaths), as well as seasonal businesses that shut down temporarily. …