Why size class methodology matters in analyses of net and gross job flows: net and gross job flow statistics by size class are produced with data from the Business Employment Dynamics program; alternative methodologies for defining size classes yield sharply different pictures of employment growth

Monthly Labor Review, July, 2004 by Cordelia Okolie

Gross job gains are defined as the summation of employment gains from expanding establishments and opening establishments. Gross job losses are defined as the summation of employment losses from contracting establishments and closing establishments. Net employment growth is the difference between gross job gains and gross job losses and is also the difference between employment levels in the current and previous quarters.

The statistics presented in this article use employment for the first and second quarters of 2000 and are not seasonally adjusted. Employment for the quarter is measured for the pay period that includes the 12th for the final month of the quarter. To be consistent with the scope of the establishments included in the Business Employment Dynamics program publications, private household workers, establishments in the public sector, and establishments located in Puerto Rico or the Virgin Islands are excluded from the analysis in this article. The aggregate net and gross job flow statistics presented herein replicate the official statistics (not seasonally adjusted) from the BLS Business Employment Dynamics program.

Before turning to the analysis, one caveat should be made perfectly clear. The empirical work presented in this article uses one quarter of longitudinal establishment microdata (employment growth from March 2000 to June 2000) to analyze how net and gross job flows are affected by various methodologies. It is not clear how methodology effects might interact with seasonality and cyclicality effects; thus, using different quarters of microdata may change the methodological and economic conclusions the article reaches.

Results: net employment change

Establishment-level net employment growth. Table 1 reports net employment growth statistics at the establishment level, calculated under the three alternative measures of employer size and the three alternative methods of calculating rates. The top third of the table uses the base-size method for categorizing establishments into size classes, the middle third uses the mean-size method, and the bottom third uses the end-size classification method. The three columns reporting net employment growth as rates rather than levels use previous-quarter, mean-quarter, and current-quarter employment in the denominator. (4)

The first observation of note from the table is that the method used to classify establishments into size classes has substantial effects on the measurement of net employment growth. The base-size statistics in the top third of the table and the end-size statistics in the bottom third provide different pictures of employment growth by size class, particularly for the smallest establishments. For example, for the smallest size category, 1 to 4 employees, the base-size statistic shows a net gain of more than 1 million jobs, whereas the end-size statistic indicates a net loss of more than 300,000 jobs.

The base-size and end-size statistics for the largest establishments also differ. For example, the base-size statistic shows that establishments with 500 to 999 employees had a net loss of 5,982 jobs, whereas the end-size statistic reveals a net gain of 285,743 jobs. Similarly, the base-size statistic indicates that establishments with 1,000 or more employees created 29,615 net jobs, in contrast to the end-size statistic, which shows that such establishments created 342,036 net jobs.