Annual measures of gross job gains and gross job losses: as a complement to the quarterly gross job flow statistics, annual gross job gains and losses statistics reveal the tremendous amount of churning that underlies the net growth of employment

Monthly Labor Review, Nov, 2004 by Joshua C. Pinkston, James R. Spletzer

The new Business Employment Dynamics at a series from the Bureau of Labor Statistics documents the quarterly gross job gains and losses from 1992 to the present. These data quantify the sizable number of jobs that appear and disappear in the U.S. economy each quarter, adding a new level of understanding that traditional employment statistics cannot provide. For example, these data show that the 2001 recession was characterized by a temporary spike in gross job losses accompanied by a decline in gross job gains that has yet to return to pre-recessionary levels. (1)

This article builds on the quarterly Business Employment Dynamics statistics by presenting annual tabulations of gross job gains and losses. These annual statistics provide information about labor market dynamics in two ways. First, in comparison to the quarterly statistics, the annual statistics highlight the transitory nature of short-run establishment level employment changes. Many quarterly expansions and contractions are temporary, and reverse themselves in other quarters during the year. Furthermore, this article finds that a significant number of establishment openings in the quarterly statistics are continuous establishments that close and re-open during the year. Second, the annual statistics provide a framework for a longer run view of how establishments grow and decline, and thus set the stage for understanding business survival. Particularly, this article explains how establishment openings and closings contribute to employment growth in both the short run and in the longer run.

This article also highlights the importance of understanding the difference between the annual statistics presented in this article versus "annualized" statistics created by summing four quarterly statistics. Although this latter methodology is standard for creating and analyzing net employment growth statistics over different frequencies, the sum of four quarterly gross job flow statistics is not the same as annual gross job flow statistics. These two approaches measure different concepts. The annual gross job flow statistics examine the number of jobs gained and the number of jobs lost over the year. The sum of four quarterly gross job flow statistics examine the number of jobs gained and the number of jobs lost during the year. Whereas the annual tabulations always have a clear interpretation, this analysis shows that the sum of four quarterly statistics (or the sum of 12 monthly statistics) can sometimes produce results that are difficult to interpret.

The article begins by describing the construction of annual statistics from the Business Employment Dynamics quarterly microdata. The algorithm for creating the annual statistics is more complicated than a simple comparison of two points in time that are 1 year apart. The article then presents the annual gross job gains and gross job loss statistics. The analysis focuses on a comparison of how the annual statistics relate to the quarterly statistics, and the value added of the annual statistics relative to the quarterly statistics. The article concludes with a discussion of how annual gross job gains and losses statistics provide a crosswalk between the new BLS quarterly statistics and the annual statistics in much of the existing gross job flows literature.

Sources, definitions, and the algorithm

The quarterly BLS Business Employment Dynamics data series is constructed from microdata originating from the Quarterly Census of Employment and Wages (QCEW), also known as the ES-202 program. All employers subject to State unemployment insurance laws are required to submit quarterly contribution reports detailing their monthly employment and quarterly wages to the State Employment Security Agencies. After the microdata are edited and, if necessary, corrected by the State Labor Market Information staff, the States submit these data and other business identification information to the Bureau of Labor Statistics as part of the Federal-State cooperative QCEW program. The data gathered in the QCEW program are a comprehensive and accurate source of employment and wages, and provide a virtual census (98 percent) of employees on nonfarm payrolls.

The quarterly gross job gains and gross job loss statistics created in the BLS Business Employment Dynamics program are tabulated by linking establishments across quarters, and establishments are then classified as opening, expanding, contracting, closing, or not changing their employment level. The accuracy of the Business Employment Dynamics statistics depends on the quality of the establishment level microdata being reported to the States. Gross job gains are the sum of all employment increases at either opening or expanding establishments; gross job losses are the sum of all employment losses at either closing or contracting establishments. The familiar net change in employment is the difference between the gross jobs gained and the gross jobs lost. (2)

The quarterly Business Employment Dynamics microdata provide the foundation for tabulations of annual gross job gains and losses statistics. Creating the annual statistics is more complicated than comparing two quarters of microdata that are 1 year apart. The difficulties come from trying to follow a specific establishment across several quarters, especially through periods of ownership changes, restructurings, or changes in how multi-establishment firms report their unemployment insurance data to the States. The annual statistics presented in this article are based on an extension of the existing longitudinal linkage algorithm developed by BLS for the quarterly gross job gains and losses data series.