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Hierarchies, Specialization, and the Utilization of Knowledge: Theory and Evidence from the Legal Services Industry
May 2004
Working Paper Number:
CES-04-07
What role do hierarchies play with respect to the organization of production and what determines their structure? We develop an equilibrium model of hierarchical organization, then provide empirical evidence using confidential data on thousands of law offices from the 1992 Census of Services. The driving force in the model is increasing returns in the utilization of acquired knowledge. We show how the equilibrium assignment of individuals to hierarchical positions varies with the degree to which their human capital is field-specialized, then show how this equilibrium changes with the extent of the market. We find empirical evidence consistent with a central proposition of the model: the share of lawyers that work in hierarchies and the ratio of associates to partners increases as market size increases and lawyers field-specialize. Other results provide evidence against alternative interpretations that emphasize unobserved differences in the distribution of demand or 'firm size effects,' and lend additional support to the view that a role hierarchies play in legal services is to help exploit increasing returns associated with the utilization of human capital.
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Endogenous Growth and Entrepreneurial Activity in Cities
January 2003
Working Paper Number:
CES-03-02
Recent theories of economic growth have stressed the role of externalities in generating growth. Using data from the Census Bureau that tracks all employers in the whole U.S. private sector economy, we examine the impact of these externalities, as measured by entrepreneurial activity, on employment growth in Local Market Areas. We find that differences in levels of entrepreneurial activity, diversity among geographically proximate industries, and the extent of human capital are positively associated with variation in growth rates, but the manufacturing sector appears to be an exception.
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Differences in Job Growth and Persistence in Services and Manufacturing
March 2000
Working Paper Number:
CES-00-04
Employment flows in services have greatly exceeded those in manufacturing over the recent decade. We examine these differences and their variation over establishment sizes and types. We test three hypotheses which have been offered to explain these differences: (1) that the difference in behavior of single and multi-unit establishments accounts for much of the difference in the net and gross growth rates of jobs in services and manufacturing; (2) that relative wage differences have a disparate effect on employment growth for services and manufacturing, and (3) that the rates of persistence (or retention) of new jobs are higher in multi-unit establishments than in single unit firms, and similar between the sectors after controlling for this. We find that it is primarily the underlying differences in establishment age and size distributions that account for the substantial differences in the average gross and net job flow rates of the two sectors, and that relative wage differences have a similar effect on employment growth in services and manufacturing.
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NEW DATA FOR DYNAMIC ANALYSIS: THE LONGITUDINAL ESTABLISHMENT AND ENTERPRISE MICRODATA (LEEM) FILE
December 1999
Working Paper Number:
CES-99-18
Until now, research on U.S. business activities over time has been hindered by the lack of accurate and comprehensive longitudinal data. The new Longitudinal Establishment and Enterprise Microdata (LEEM) are tremendously rich data that open up numerous possibilities for dynamic analyses of businesses in the U.S. economy. It is the first nationwide high-quality longitudinal database that covers the majority of employer businesses from all sectors of the economy. Due to the confidential nature of these data, the file is located at the Center for Economic Studies in the U.S. Bureau of the Census. To access the data, researchers must submit an acceptable proposal to CES and become sworn Census researchers. This paper describes the LEEM file, the variables contained on the file, and current uses of the data.
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Gross Job Flows and Firms
November 1999
Working Paper Number:
CES-99-16
This paper extends the work of Dunne, Roberts, and Samuelson (3) and Davis, Haltiwanger, and Schuh (2) on gross job flows among manufacturing plants. Gross job creation, destruction, and reallocation have been shown to be important in understanding the birth, growth, and death of plants, and the relation of plant life cycles to the business cycle. However, little is known about job flows between firms or how job flows among plants occur within firms (corporate restructuring). We use information on company organization from the Longitudinal Research database (LRD) to investigate the relationship between plant-level and firm-level job flows. We document: (1) the fraction of plant-level gross job flows occurring between firms; and (2) gross job flows by the extent of excess job reallocation occurring in firms.
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Job Flow Dynamics in the Service Sector
November 1999
Working Paper Number:
CES-99-14
This paper uses the new comprehensive Longitudinal Establishment and Enterprise Microdata at CES to investigate gross and net job flows for 1990 to 1995 for all establishments in the service sector. After examining the recent shifts in the distribution of employment in non-financial services, from single unit firms to multi-unit firms, and from smaller firms to larger ones, we calculate five year gross and net job flow rates for these various types of establishments. This shows that the increasing share of service employment in large firms is not due to higher growth in larger firms. Seeking the dynamics behind the shift of employment to larger firms, we investigate how job flow rates are related to firm and establishment size, using alternative size classification methods. Gross job flow rates vary inversely with the age of establishments in services, as do net growth rates of surviving establishments, even after controlling for size. To help distinguish among the effects of age, firm size, and establishment size on gross and net job flows in services, multivariate regression analysis is used. We find that all gross job flow rates decline with increasing age of establishments when size and industry differences are controlled. Because the job destruction rate falls faster than the creation rate as age increases, net growth rates increase with age for services as a whole. Gross and net job creation also declines with increasing size of establishments, but destruction rates increase with size when controlling for age and industry differences. Firm size differences contribute little or nothing additional when we control for establishment size and age.
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MEASURES OF JOB FLOW DYNAMICS IN THE U.S.*
January 1999
Working Paper Number:
CES-99-01
This paper uses the new Longitudinal Establishment and Enterprise Microdata (LEEM) at CES to investigate gross and net job flows for the U. S. economy. Much of the previous work on U.S. job flows has been based on analysis of the Longitudinal Research Database (LRD), which is limited to establishments in the manufacturing sector. The LEEM is the first high-quality, nationwide, comprehensive database for both manufacturing and non-manufacturing that is suitable for measuring annual job flows. We utilize the LEEM data to measure recent gross and net job flows for the entire U. S. economy. We then examine the relationships between firm size, establishment size, and establishment age, and investigate differences resulting from use of two alternative methods for classification of job flows by size of firm and establishment. Cell-based regression analysis is used to help distinguish among the effects of age, firm size, and establishment size on gross and net job flows in existing establishments. We find that gross job flow rates decline with age, and with increasing establishment size when controlling for age differences, whether initial size or mean size classification is utilized. Firm size differences contribute little or nothing additional when establishment size and age are controlled for. However, the relationship of net job growth to business size is very sensitive to the size classification method, even when data and all other methodology are identical. When mean size classification is used, the coefficient on establishment size for net job growth is generally positive, but when initial size is used, this coefficient is negative. These results shed light on some of the apparently conflicting findings in the literature on the relationship between net growth and the size of businesses.
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Exiting Self-Employment: An Analysis of Asian Immigrant-Owned Small Businesses
November 1998
Working Paper Number:
CES-98-13
Part of the uniqueness of the immigrant Asian business community in the U.S. lies in the fact that many among the highly educated pursue self-employment in small-scale, low-yielding retail and personal service fields. This study analyzes owner departure for a nationwide sample of small businesses owned by Asian Indian and Filipino immigrants and a comparison group of Asian nonimmigrant firm owners. Controlling for firm and owner traits, highly educated Asian immigrant owners are more likely than others to exit self-employment over the 1987-1991 period; exit from traditional fields (retail and personal services) is pronounced. These exit patterns do not typify the comparison group. Findings are consistent with the hypothesis that self-employment is often a form of underemployment among Asian immigrants.
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Longitudinal Establishment And Enterprise Microdata (LEEM) Documentation
May 1998
Working Paper Number:
CES-98-09
This paper introduces and documents the new Longitudinal Enterprise and Establishment Microdata (LEEM) database, which has been constructed by Census' Economic Planning and Coordination Division under contract to the Office of Advocacy of the U.S. Small Business Administration. The LEEM links three years (1990, 1994, and 1995) of basic data for each private sector establishment with payroll in any of those years, along with data on the firm to which the establishment belongs each year. The LEEM data will facilitate both broader and more detailed analysis of patterns of job creation and destruction in the U.S., as well as research on the structure and dynamics of U.S. businesses. This paper provides documentation of the construction of LEEM data, summary data on most variables in the database, comparisons of the annual data with that of the nearly identical County Business Patterns, and distributions of establishments and their employment by the size of their firms. This is followed by a simple analysis of changes over time in the attributes of surviving establishments, and a brief discussion of turnover (business births and deaths) in the population and gross changes in employment associated with both establishment turnover and with surviving establishments. It concludes with a summary of the strengths and weaknesses of the LEEM.
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Survival Patterns Among Newcomers To Franchising
May 1997
Working Paper Number:
CES-97-05
This study analyzes survival patterns among franchisee firms adn establishments that began operations in 1986 and 1987. Differing methodologies and data bases are utilized to demonstrate that 1) franchises have higher survival rates than independents, and 2) franchises have lower survival rates than independent business formations. Analyses of corporate establishment data generate high franchisee survival rates relative to independents, while analyses of young firm data generate the opposite pattern. In either case, the franchise trait is one of several determinants of survival prospects. The larger-scale, more established firms consistently stay in operation more frequently than smaller-scale, younger firms. Analysis of all corporate establishment restaurant units opened in 1986 or 1987 that use paid employees in 1987 helps to reconcile the seeming inconsistencies reported above. Most of the young franchisee units were not owned by young firms: rather, their parents were multi-establishment franchisees, and most of them were mature firms. Among the true newcomers, franchise survival rates are low; among the entrenched multi-establishment franchisees, survival rates were high.
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