High-employment-growth firms: defining and counting them
Two final points need to be mentioned. First, as a result of the longitudinal linkage algorithm used by the BED, the high-growth-firm statistics in this article are not influenced by the employment gains and losses that occur as a result of mergers and acquisitions. The technical details of this are explained in a detailed endnote.10 Second, all statistics in this article are research tabulations from the BED program at the BLS.
Estimates of high-growth firms
As shown in table 1, there were about 4.9 million private sector firms in March 2009, and these firms employed 106.2 million employees. We also see that 1.2 million firms which existed in March 2009 were expanding during the March 2009 to March 2012 period, and these expanding firms created 12 million jobs over this period. We classify 96,900 of these expanding firms as high-growth firms. These high-growth firms created 4.2 million jobs during the 3 years.
|Period||Total number of firms in the base year||Total employment in the base year||Total number of expanding firms||Gross job gains by expanding firms||Number of high-growth firms||Gross job gains by high-growth firms||Number of HGFs as a percent of total firms||Number of HGFs as a percent of total expanding firms||Gross job gains by HGFs as a percent of all gross job gains by expanding firms|
Sources: U.S. Bureau of Labor Statistics, Business Employment Dynamics research data, and authors’ calculations.
About 2 percent of the 4.9 million firms in 2009 were high-growth firms in the 2009–2012 period; these 96,900 high-growth firms accounted for close to 8 percent of the 1.2 million expanding firms. Furthermore, high-growth firms contributed 35 percent of the gross job gains of expanding firms over the 2009–2012 period. These statistics tell us that the number of high-growth firms is relatively small, but these high-growth firms created proportionally more jobs than the average expanding firm. If we calculate average jobs created, high-growth firms created, on average, 43.3 jobs per firm over the 2009–2012 period, whereas all expanding firms created, on average, 9.7 jobs per firm over the same period. The average high-growth firm created roughly 4.5 times more jobs than did the average expanding firm.
Table 1 also reports the time series of high-growth firms during the past 16 years. In chart 1, we graph the time series of high-growth firms as a percentage of all firms. We see that the percentage of firms that are high-growth firms has declined over time, from 3.1 percent during the mid-to-late 1990s to 1.5 percent in the 2007–2010 and 2008–2011 timeframes. Part of this decline appears to be a general trend across the 14 years of analysis, while the other part of the decline appears to be due to recessions.11 We see a decline in the percentage of high-growth firms during the years associated with the 2001 recession, from 3.1 percent in the mid-to-late 1990s to 2.2 percent for the 3-year intervals 2000–2003 and 2001–2004. The percentage of high-growth firms increased to 2.6 percent during the mid-2000s as the economy came out of the 2001 recession, but fell to a low of 1.5 percent during the 3-year intervals (2007–2010 and 2008–2011) associated with the 2007–2009 recession. The percentage of high-growth firms then increased to 2.0 percent in the 2009–2012 period as the economy grew out of the recession.
Statistics by size and age. Often associated with discussions of high-growth firms is a reference to gazelles. Gazelles are young high-growth firms. The term “gazelle” dates back to the work of David Birch in 1979.12 Birch referred to the fastest growing firms as gazelles, in addition to referring to the majority of small firms that don’t grow as “mice” and referring to the large firms as “elephants.” In table 2, we provide evidence on gazelles by documenting the number of high-growth firms in the 2009–2012 timeframe by their age in 2009.
10 In a simple example of mergers and acquisitions, firm A acquires firm B and the new combined firm continues under firm A’s identifier. In a naive linkage algorithm, firm B would be observed to die and firm A would be observed to expand. We don’t want this type of expansion to cause firm A to be classified as a high-growth firm. The longitudinal linkage algorithm used by the BED controls for this by combining firm A and firm B in the previous period and computing the employment growth as the employment of the actual combined firm in the current period minus the employment of the artificially combined firm in the previous period. For a more detailed description, see Joshua C. Pinkston and James R. Spletzer, “Annual measures of job creation and job destruction created from quarterly ES-202 microdata,” American Statistical Association 2002 Proceedings of the Section on Business and Economic Statistics, pp. 3311–3316, http://www.bls.gov/osmr/pdf/st020230.pdf.
11 The business cycle dates used in this article are those determined by the National Bureau of Economic Research.
12 See David L. Birch, “The job generation process,” unpublished report, MIT Program on Neighborhood and Regional Change for the Economic Development Administration (U.S. Department of Commerce, 1979); David L. Birch, “Who creates jobs?’’ Public Interest 65 (1981), pp. 3–14; and David L. Birch, Job creation in America: how our smallest companies put the most people to work (New York: Free Press, 1987).