Business Employment Dynamics Twentieth Anniversary!

Akbar Sadeghi

In September 2003, BLS issued the first news release of the Business Employment Dynamics (BED) data series, presenting 42 quarters of gross job gains and gross job losses for the private sector of the U.S. economy. Since then, BED has published 82 quarterly releases and expanded its measures of job gains and losses. We celebrate BED's twentieth anniversary and look forward to the future with more data spotlighting the underlying dynamics of the labor market.

The gross job gains and gross job losses statistics, the main data elements in the BED data series, are particularly useful in highlighting the forces behind net changes in employment. They help economists, policymakers, and the business community develop a more complete understanding of business cycles.

In general, job losses exceed job gains in recessionary periods. The unprecedented shock of the COVID-19 pandemic led to more than 20 million gross job losses in the second quarter of 2020. The subsequent recovery brought gross job gains and losses down to levels consistent with their long-term trends.

A dynamic labor market reveals the extent of both gross job gains and gross job losses in the net employment growth. Over time, new goods and services and new production processes replace those that are older and less productive, generating job losses in some markets and job gains in others.

The job reallocation rate—defined as the sum of total jobs gained and total jobs lost divided by the total number of jobs in the economy—is an indicator of employment dynamism. The job reallocation rate peaked in 1998, followed by a long downward trend. The rate increased sharply at the onset of the pandemic, reflecting the tremendous increase in business closings, openings, contractions, and expansions. The current economic recovery has brought the rate down to levels similar to those seen prior to the pandemic.

The number of jobs created by start-ups declined from the series peak in 1999 to a series low in 2010 following the 2007–09 recession. Over that time, the increase in jobs had not kept pace with the increase in the number of start-ups, resulting in a lower average establishment start-up size compared to the late 1990s. However, that trend has reversed in recent years, with jobs created by start-ups generally increasing since 2011 (including during the pandemic-induced recession of 2020). Startups are firms or establishments that are less than a year old.

Given the number of jobs from start-ups has not kept pace with the number of start-ups, the average employment size of establishment start-ups has generally trended down since the start of the series in 1994. The average start-up employed 7.3 workers in 1998, but, by 2023, the average employment at a start-up was 3.5 workers.

BED data can be used to examine survival patterns of start-ups as compared with existing businesses. Without start-ups, there is generally no net employment growth. Start-ups, by definition, are net job creators in their debut year, while previously existing businesses collectively are mostly net job destroyers. The fast recovery of enormous job losses during the pandemic-induced recession caused existing businesses to have positive net gains in 2022.

BED age and survival data can track the effects of economic conditions on the rate of survival for start-ups after a certain number of years in business. Start-ups that experienced a recessionary period in their early growth generally have lower 5-year survival rates than those born in the corresponding recovery periods. However, start-ups in 2018—before the onset of the short, sharp pandemic-induced recession—had the highest survival rate.

The gap between average wages paid at higher-paying establishments and lower-paying establishments had been widening from 1992 (the start of the data series) until peaking in 2014. Although the wage ratio has trended downward since then, it remains higher than when the series began. In the first quarter of 2020, wages at the higher-paying establishments were approximately 3.23 times more than wages paid to workers at the lower-paying establishments.

Because there was little data on business movement, population migration had long been used as a proxy for internal shifts in economic activity. Recognizing a data gap, BLS developed data on firms that moved across states and regions from 1994 to 2021. BED data showed how business migration has trended over time, in what specific industries and regions migrant businesses are concentrated, and how their employment and wages compare with the rest of the economy. The Midwest, Northeast, and West Census regions had net outflows of firms from 2020 to 2021. The South had a net inflow of firms across that same year.