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

In addition to an increased number of openings and closings, one might expect the average size of establishment openings and closings to increase as the time horizon is lengthened over which employment growth is measured. First, the composition of establishment openings is different in the quarterly and the annual statistics, because many openings that do not survive several quarters will not be in the annual statistics. The existing literature finds that the smallest establishments are the most likely to die shortly after birth. (7) Second, if employment growth in surviving births is a gradual process as these new establishments learn about their business environment, then quarterly measures of employment growth will understate (relative to annual measures) the amount of gross job gains attributable to openings. Similarly, if closing establishments decrease their size gradually over time, then quarterly measures of gross job losses will understate the jobs lost from these establishments. Calculations using March 2001-March 2002 statistics from tables 1 and 3 show an increasing average size of openings and closings over a longer run horizon: The size of the average opening increases from 5.3 jobs measured quarterly to 6.6 jobs measured annually, and the average size of a closing increases from 5.3 jobs measured quarterly to 7.1 jobs measured annually.

Also, the average size of expansions and contractions is larger in the annual statistics compared with the quarterly statistics. The average expansion has 5.4 employees measured annually versus 4.3 employees measured quarterly, and the average contraction has 6.4 employees measured annually versus 4.5 employees measured quarterly. One explanation is that in the short run, some of the expansions and contractions in the data are transitory fluctuations caused by the hiring process taking some time. In the long run, sustained expansions and contractions will distinguish themselves from these short run transitory employment fluctuations.

Comparing the annual statistics to the sum of four quarterly statistics. The new quarterly Business Employment Dynamics data series has been used by many analysts for many applications. There has been a demand by the user community for annual gross job gains and losses statistics, and some users have "annualized" the quarterly statistics themselves. (8) This section addresses whether it is appropriate to use the sum of the four quarterly gross job flows statistics as an annual gross job flows statistic.

As noted earlier, the sum of the four quarterly net employment changes in table 1 is the annual net employment change. However, the sum of the four quarterly gross job gains is much greater than the annual gross job gains, and the sum of the four quarterly gross job losses is much greater than the annual gross job losses. For example, the sum of jobs created by expanding establishments in each quarter from March 2001 to March 2002 is 24,850,396, whereas the annual tabulation shows that only 8,752,075 jobs were added by expanding establishments.