Business Employment Dynamics: Tabulations by Employer Size: To Measure Quarterly Employment Growth by Firm Size, Using Business Employment Dynamics Data, BLS Chooses Dynamic-Sizing as the Official Methodology

By Butani, Shail J.; Clayton, Richard L. et al. | Monthly Labor Review, February 2006 | Go to article overview

Business Employment Dynamics: Tabulations by Employer Size: To Measure Quarterly Employment Growth by Firm Size, Using Business Employment Dynamics Data, BLS Chooses Dynamic-Sizing as the Official Methodology


Butani, Shail J., Clayton, Richard L., Kapani, Vinod, Spletzer, James R., Talan, David M., Werking, George S., Jr., Monthly Labor Review


Business Employment Dynamics (BED) data are becoming a major contributor to our understanding of employment growth and business cycles in the U.S. economy. The Bureau of Labor Statistics BED program generates gross job gains and gross job loss statistics that underlie the quarterly net change in employment. These statistics show, for example, that the net growth of 869,000 jobs in the fourth quarter of 2004 is from the sum of 8.1 million gross job gains from opening and expanding establishments, and 7.2 million gross job losses from contracting and closing establishments.

The new BED data have captured the attention of economists and policymakers across the country, and are high quality, high frequency, relatively timely, and historically consistent. The microdata used to construct the gross job gains and gross job loss statistics are from the Quarterly Census of Employment and Wages (QCEW). It is important to note that the BED data were created with no new data collection efforts and with no new additional respondent burden.

Following the initial release of the BED data in September 2003, the BED data series expanded in May 2004 with the release of industry statistics. BLS then began work on tabulations by size class. The production of size-class statistics is a complex task involving several economic and statistical issues. Although it is trivial to classify a business into a size class in any given quarter, it is difficult to classify a business into a size class for a longitudinal analysis of employment growth. Several different classifications exist, and many of these possible classifications have appealing theoretical and statistical properties. Furthermore, these alternative classification methodologies result in sharply different portraits of employment growth by size class. (1)

This article discusses the alternative statistical methodologies that BLS considered for creating size-class tabulations from the BED data. Our primary focus is to compare and contrast four alternative methodologies: quarterly base-sizing, annual base-sizing, mean-sizing, and dynamic-sizing, and to discuss the evaluation criteria that BLS considered for choosing its official size-class methodology. Although BLS is making the seasonally adjusted data series from all the classification methodologies available for research purposes, one methodology had to be chosen as the official methodology for citation and analysis in the quarterly BED press release. This is analogous to the calculation of the unemployment rate from the Current Population Survey--BLS produces and releases six different unemployment rates {UI, U2, ..., U6}, yet refers only to the official unemployment rate, U3, in the text of the monthly employment situation press release. (2) After careful consideration of the four methodologies, BLS chose dynamic-sizing as the official methodology for the BED size-class statistics.

The economics of employer size

Many BLS employment statistics are for the Nation as a whole, with additional detail provided for industry and geographical breakdowns. The BLS Quarterly Census of Employment and Wages program also produces statistics by employer size. Some interesting aspects about the U.S. economy are evident in these cross-sectional QCEW employer-size statistics.

Empirical findings about employer size. Two of the most interesting empirical findings about the role of employer size in the U.S. economy involve the relationships between employer size and number of employees and between employer size and wages earned. First, although most establishments are small, most people work in mid-sized and large establishments. Table 1, which documents the number of establishments and their employment by size class, shows that 60 percent of establishments have less than 5 employees, and 17 percent of establishments have between 5 and 9 employees. (3) Most establishments in the United States are small: 88 percent of establishments have less than 20 employees, 95 percent of establishments have less than 50 employees, and 98 percent of establishments have less than 100 employees. …

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