Job creation and destruction within Washington and Baltimore: microdata from the new BLS Longitudinal Database show that from March 1992 through March 1999, gross job flows varied significantly between central cities and suburbs in the Washington-Baltimore metropolitan area; higher suburban employment growth was related to higher rates of both job creation and job destruction

Monthly Labor Review, Sept, 2001 by R. Jason Faberman

It is well known that there exists a large disparity in the growth rates of central cities and suburbs. In a host of metropolitan areas, central city employment has declined, while suburban employment has flourished. Understanding the nature and causes of these growth patterns are critical to those seeking to stimulate the economy of a central city or deal with suburban expansion. One previously unexplored aspect of metropolitan growth patterns is their gross job flow components--employment changes due to establishment startups, shutdowns, expansions, and contractions. At its core, employment growth is simply the net result of these four components. An examination of those components reveals much more about the employment patterns within a metropolitan area than does an analysis of employment growth alone. Consequently, this article analyzes just how much gross job flows relate to the observed differences in growth between central cities and suburbs.

Gross job flows have recently become the primary focus of several economic studies. Previously, economists relied almost entirely on aggregated data for their research purposes, particularly in studies involving employers and labor demand. This practice, however, allowed researchers to observe only the net changes in economic variables from period to period. A few economists, notably Timothy Dunne, Mark J. Roberts, and Larry Samuelson, (1) as well as Steven Davis and John C. Haltiwanger, (2) appealed to establishment-level microdata for their analyses of the U.S. macroeconomy and aggregate labor dynamics. By using those data, they were able to analyze both employment growth and gross job flows for the economy. Together, these variables gave a much clearer picture of how the labor market functioned, and they changed how many economists perceived the way the economy worked.

Job flows deal with changes in employment at the place of work. These changes are associated with the startup and closing of an establishment, as well as the expansion or contraction of a continuing establishment's workforce. As the evidence that follows shows, job flows are quite pervasive. They can account for changes totaling more than 15 percent of employment in a given quarter. Such high rates of job turnover are reported in several other empirical studies also. (3)

Research on job flows requires access to establishment microdata. The Bureau of Labor Statistics is currently in the process of producing a new set of this type of data. The Longitudinal Database (LDB) contains quarterly employment and wage data for nearly all establishments in the U.S. economy. The Unemployment Insurance (UI) records from the BLS ES-202 program provide the raw data for the LDB. These records are matched across time in order to create a continuous longitudinal time series for each establishment, thereby allowing a researcher to observe when establishments start up, shut down, expand their employment, or contract their operations. Unlike previous databases, the LDB has quarterly information on all private and public establishments. Extending past the manufacturing industry, the LDB covers approximately 98 percent of all employed individuals. Consequently, it provides a unique source of data for a variety of micro- and macroeconomic studies. (4) The coverage of industries and establishments in the LDB makes it particularly useful for in-depth regional studies such as the one presented in this article.

Previous research on job flows dealt primarily with national-level data and usually focused on manufacturing. Research across all industries at a finer level of regional detail has the potential to highlight many interesting findings about the labor market. For instance, Randall W. Eberts and Edward Montgomery have one of the few studies that explore State-level job flows using establishment microdata. (5) These researchers find a positive relation between job flows and employment growth across areas: growing areas tend to have higher rates of both job creation and job destruction. Findings such as this for metropolitan areas or smaller regions could greatly aid in our understanding of how local labor markets function.

The analysis that follows focuses on the Washington and Baltimore metropolitan areas and looks at quarterly job flows from March 1992 to March 1999. These two metropolitan areas are particularly interesting because they have several unique properties. Washington and Baltimore are rather large metropolitan areas, and although they are located in close proximity to each other, they have quite different industrial and sectoral compositions and have experienced different paths of economic growth. Washington is predominantly a service-based city. Nationally and locally, the service industry has grown considerably over the past decade. As the national capital, Washington also has a disproportionate share of public-sector employees. Baltimore, by contrast, is predominantly a manufacturing-based city and is similar to many of the metropolitan areas in the "Rust Belt," which dominate the Northeastern, Midwestern, and Mid-Atlantic regions of the United States. Like many of its northern counterparts, Baltimore has had to adjust to significant structural change, as its more mature industries have faced employment contractions. Finally, both metropolitan areas have well-defined political boundaries for their central cities (the District of Columbia and Baltimore City, respectively), making them particularly useful for this study.