Job Creation and Job Destruction

By Dunne, Tim; Meyer, Brent | Economic Trends, March 2007 | Go to article overview

Job Creation and Job Destruction


Dunne, Tim, Meyer, Brent, Economic Trends


02.26.07

The BLS recently reported that job gains in the second quarter of 2006 totaled 6.9 percent of private sector employment, and job losses came in at 6.5 percent of employment. "This represents 7.8 million jobs created and 7.3 million jobs destroyed in the quarter. Job creation is measured as the net employment change of establishments that are expanding employment plus the employment at newly opened establishments. Job destruction is measured as the net employment change at establishments that are reducing employment plus the employment loss due to establishment closings. The difference between job creation and job destruction reflects the net change in the number of jobs.

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The 2001 recession shows both a dip in job creation and a jump ill job destruction, resulting in a net job loss for the private sector. But the net change in jobs isn't the only interesting feature of the BLS employment dynamics series. The degree of job churning is reflected there as well, in the rates of job creation and job destruction themselves, and in recent years both of those rates have declined noticeably. This drop in job creation and destruction rates is part of an ongoing trend documented in a recent paper on job flows by Sreven J. Davis, R. Jason Faberman, and John Haltiwanger.

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To summarize the amount of job churning present in an economy, economists sometimes use a measure called excess job reallocation, which measures the amount of job creation and job destruction that occurs above and beyond the adjustment necessary to account for the net change in jobs. (That is, the number of net jobs that were added or destroyed is subtracted from the total number of jobs created and destroyed.) Excess reallocation in the private sector held steady through 1990s but has declined in more recent years.

The recent decline in excess reallocation occurs across almost all industry groups and reflects an overall decline in both job creation and job destruction rates. …

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