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

Caution should be used with regard to distinguishing between annual statistics and the sum of four quarterly statistics. Neither is inherently right or wrong; the two different approaches are simply answers to different questions. The annual statistics show job gains and losses over a year. The sum of quarterly numbers look at the gains and losses during a year.

The intuition for the difference between these two concepts is straightforward. Many quarterly changes reverse themselves over the course of a year. Many of these reversals are due to lags in hiring for vacant positions (a gross job loss in one quarter followed by a gross job gain in the subsequent quarter), and many are due to seasonality (for example, employment at amusement parks expands in the summer and contracts in the winter). The data indicate that 53 percent of the establishments that expanded in the quarter between March and June of 2001 also expanded over the year from March 2001 to March 2002. The data also indicate that 62 percent of the establishments that expanded over the year had at least one quarter during the year in which they contracted. Only 2 percent of the establishments that expanded over the year expanded in all four quarters during the year.

Summing high frequency statistics, such as quarterly statistics, to examine job gains and losses during a longer period such as a year has two drawbacks. First, this method will result in different answers depending on whether one sums 12 monthly statistics, 4 quarterly statistics, and so on. To illustrate this, assume a user wants to know the gross jobs gained during the 2-year period from March 2000 to March 2002. The sum of the two annual statistics from table 2 suggests that 29,385,084 jobs were gained during the 2-year period, whereas the sum of the eight quarterly statistics suggests that 66,808,622 jobs were gained during the 2-year period. If one wanted to truly count every single job that was gained or lost during a year, one would have to sum statistics from time periods that are small enough such that no single gain or loss has time to reverse itself.

A second drawback is that summing quarterly statistics can produce strange results that are difficult to interpret--this is especially true for percentages, which may sum to more than 100 percent. This can easily be seen using statistics from table 4: between 26 percent and 32 percent of establishments gained jobs in any quarter between March 2001 and March 2002, but the sum of the four quarterly statistics cannot be interpreted as saying that 113.4 percent of establishments gained jobs during the year.

A closer examination of quarterly and annual openings. A comparison of quarterly openings with annual openings will help illustrate why the sum of quarterly statistics differs from the annual statistic. In table 3, there are 377,140 opening establishments in the second quarter of 2001, 297,385 opening establishments in the third quarter of 2001, 361,787 opening establishments in the fourth quarter of 2001, and 328,795 opening establishments in the first quarter of 2002. The sum of these four quarterly statistics is 1,365,107, which is substantially higher than the 790,237 opening establishments reported in the annual tabulation. There are several reasons for this difference.