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High Growth Young Firms: Contribution to Job, Output and Productivity Growth
January 2016
Working Paper Number:
CES-16-49
Recent research shows that the job creating prowess of small firms in the U.S. is better attributed to startups and young firms that are small. But most startups and young firms either fail or don't create jobs. A small proportion of young firms grow rapidly and they account for the long lasting contribution of startups to job growth. High growth firms are not well understood in terms of either theory or evidence. Although the evidence of their role in job creation is mounting, little is known about their life cycle dynamics, or their contribution to other key outcomes such as real output growth and productivity. In this paper, we enhance the Longitudinal Business Database with gross output (real revenue) measures. We find that the patterns for high output growth firms largely mimic those for high employment growth firms. High growth output firms are disproportionately young and make disproportionate contributions to output and productivity growth. The share of activity accounted for by high growth output and employment firms varies substantially across industries ' in the post 2000 period the share of activity accounted for by high growth firms is significantly higher in the High Tech and Energy related industries. A firm in a small business intensive industry is less likely to be a high output growth firm but small business intensive industries don't have significantly smaller shares of either employment or output activity accounted for by high growth firms.
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The Consequences of Long Term Unemployment:
Evidence from Matched Employer-Employee Data*
January 2016
Working Paper Number:
CES-16-40
It is well known that the long-term unemployed fare worse in the labor market than the short-term unemployed, but less clear why this is so. One potential explanation is that the long-term unemployed are 'bad apples' who had poorer prospects from the outset of their spells (heterogeneity). Another is that their bad outcomes are a consequence of the extended unemployment they have experienced (state dependence). We use Current Population Survey (CPS) data on unemployed individuals linked to wage records for the same people to distinguish between these competing explanations. For each person in our sample, we have wage record data that cover the period from 20 quarters before to 11 quarters after the quarter in which the person is observed in the CPS. This gives us rich information about prior and subsequent work histories not available to previous researchers that we use to control for individual heterogeneity that might be affecting subsequent labor market outcomes. Even with these controls in place, we find that unemployment duration has a strongly negative effect on the likelihood of subsequent employment. This finding is inconsistent with the heterogeneity ('bad apple') explanation for why the long-term unemployed fare worse than the short-term unemployed. We also find that longer unemployment durations are associated with lower subsequent earnings, though this is mainly attributable to the long-term unemployed having a lower likelihood of subsequent employment rather than to their having lower earnings once a job is found.
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Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.
November 2015
Working Paper Number:
CES-15-43
The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades. We show that the character of that decline changed around 2000. Since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high-growth young firms. Prior research has shown that the sustained contribution of business startups to job creation stems from a relatively small fraction of high-growth young firms. The presence of these high-growth young firms contributes to a highly (positively) skewed firm growth rate distribution. In 1999, a firm at the 90th percentile of the employment growth rate distribution grew about 31 percent faster than the median firm. Moreover, the 90-50 differential was 16 percent larger than the 50-10 differential reflecting the positive skewness of the employment growth rate distribution. We show that the shape of the firm employment growth distribution changes substantially in the post-2000 period. By 2007, the 90-50 differential was only 4 percent larger than the 50-10, and it continued to exhibit a trend decline through 2011. The reflects a sharp drop in the 90th percentile of the growth rate distribution accounted for by the declining share of young firms and the declining propensity for young firms to be high-growth firms.
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Cyclical Reallocation of Workers Across Employers by Firm Size and Firm Wage
June 2015
Working Paper Number:
CES-15-13
Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions.
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The Evolution of National Retail Chains: How We Got Here
March 2015
Working Paper Number:
CES-15-10
The growth and dominance of large, national chains is a ubiquitous feature of the US retail sector. The recent literature has documented the rise of these chains and the contribution of this structural change to productivity growth in the retail trade sector. Recent studies have also shown that the establishments of large, national chains are both more productive and more stable than the establishments of single-unit firms they are displacing. We build on this literature by following the paths of retail firms and establishments from 1977 to 2007 using establishment- and firm-level data from the Census of Retail Trade and the Longitudinal Business Database. We dissect the shift towards large, national chains on several margins. We explore the differences in entry and exit as well as job creation and destruction patterns at the establishment and firm level. We find that over this period there are consistently high rates of entry and job creation by the establishments of single-unit firms and large, national firms, but net growth is much higher for the large, national firms. Underlying this difference is far lower exit and job destruction rates of establishments from national chains. Thus, the story of the increased dominance of national chains is not so much due to a declining entry rate of new single-unit firms but rather the much greater stability of the new establishments belonging to national chains relative to their single-unit counterparts. Given the increasing dominant role of these chains, we dissect the paths to success of national chains, including an analysis of four key industries in retail trade. We find dramatically different patterns across industries. In General Merchandise, the rise in national chains is dominated by slow but gradual growth of firms into national chain status. In contrast, in Apparel, which has become much more dominated by national chains in recent years, firms that quickly became national chains play a much greater role.
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FIRM AGE AND SIZE IN THE LONGITUDINAL EMPLOYER-HOUSEHOLD DYNAMICS DATA
March 2014
Working Paper Number:
CES-14-16
The Census Bureau's Quarterly Workforce Dynamics (QWI) and OnTheMap now provide detailed workforce statistics by employer age and size. These data allow a first look at the demographics of workers at small and young businesses as well as detailed analysis of how hiring, turnover, job creation/destruction vary throughout a firm's lifespan. Both the QWI and OnTheMap are tabulated from the Longitudinal Employer-Household Dynamics (LEHD) linked employer-employee data. Firm age and size information was added to the LEHD data through integration of Business Dynamics Statistics (BDS) microdata into the LEHD jobs frame. This paper describes how these two new firm characteristics were added to the microdata and how they are tabulated in QWI and OnTheMap
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Don't Quit Your Day Job: Using Wage and Salary Earnings to Support a New Business
September 2013
Working Paper Number:
CES-13-45
This paper makes use of a newly constructed Census Bureau dataset that follows the universe of sole proprietors, employers and non-employers, over 10 years and links their transitions to their activity as employees earning wage and salary income. By combining administrative data on sole proprietors and their businesses with quarterly administrative data on wage and salary jobs held by the same individuals both preceding and concurrent with business startup, we create the unique opportunity to quantify significant workforce dynamics that have up to now remained unobserved. The data allow us to take a first glimpse at these business owners as they initiate business ventures and make the transition from wage and salary work to business ownership and back. We find that the barrier between wage and salary work and self-employment is extremely fluid, with large flows occurring in both directions. We also observe that a large fraction of business owners takeon both roles simultaneously and find that this labor market diversification does have implications for the success of the businesses these owners create. The results for employer transitions to exit and non-employer suggest that there is a 'don't quit your day job' effect that is present for new businesses. Employers are more likely to stay employers if they have a wage and salary job in the year just prior to the transitions that we are tracking. It is especially important to have a stable wage and salary job but there is also evidence that higher earnings from the wage and salary job makes transition less likely. For nonemployers we find roughly similar patterns but there are some key differences. We find that having recent wage and salary income (and having higher earnings from such wage and salary activity) increases the likelihood of survival. Having recent stable wage and salary income decreases the likelihood of a complete exit but increases the likelihood of transiting to be an employer. Having recent wage and salary income in the same industry as the non-employer business has a large and positive impact on the likelihood of transiting to being a non-employer business.
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REALLOCATION IN THE GREAT RECESSION: CLEANSING OR NOT?
August 2013
Working Paper Number:
CES-13-42
The high pace of output and input reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. Resources are shifted away from low productivity producers towards high productivity producers. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are 'cleansing' is an open question. That is, are recessions periods of increased reallocation that move resources away from lower productivity activities towards higher productivity uses? It could be recessions are times when the opportunity cost of time and resources are low implying recessions will be times of accelerated productivity enhancing reallocation. Prior research suggests the recession in the early 1980s is consistent with an accelerated pace of productivity enhancing reallocation. Alternative hypotheses highlight the potential distortions to reallocation dynamics in recessions. Such distortions might arise from many factors including, for example, distortions to credit markets. We find that in post-1980 recessions prior to the Great Recession, downturns are periods of accelerated reallocation that is even more productivity enhancing than in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose (due to the especially sharp decline in job creation) and the reallocation that did occur was less productivity enhancing than in prior recessions.
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How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size
June 2013
Working Paper Number:
CES-13-30
There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession.
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Childhood Housing and Adult Earnings: A Between-Siblings Analysis of Housing Vouchers and Public Housing
January 2013
Working Paper Number:
CES-13-48RR
To date, research on the long-term effects of childhood participation in voucher-assisted and public housing has been limited by the lack of data and suitable identification strategies. We create a national level longitudinal data set that enables us to analyze how children's housing experiences affect adult earnings and incarceration rates. While naive estimates suggest there are substantial negative consequences to childhood participation in voucher assisted and public housing, this result appears to be driven largely by selection of households into housing assistance programs. To mitigate this source of bias, we employ household fixed-effects specifications that use only within-household (across-sibling) variation for identification. Compared to naive specifications, household fixed-effects estimates for earnings are universally more positive, and they suggest that there are positive and statistically significant benefits from childhood residence in assisted housing on young adult earnings for nearly all demographic groups. Childhood participation in assisted housing also reduces the likelihood of incarceration across all household race/ethnicity groups. Time spent in voucher-assisted or public housing is especially beneficial for females from non-Hispanic Black households, who experience substantial increases in expected earnings and lower incarceration rates.
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