New Quarterly Data From BLS on Business Employment Dynamics By Size of Firm Technical Note

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Technical Note
   
   
   
   The Business Employment Dynamics (BED) data are a product of a federal-
state cooperative program known as the Quarterly Census of Employment and
Wages (QCEW), or the ES-202 program.  The BED data are compiled by the U.S.
Bureau of Labor Statistics (BLS) from existing quarterly state unemployment
insurance (UI) records.  Most employers in the U.S. are required to file
quarterly reports on the employment and wages of workers covered by UI
laws, and to pay quarterly UI taxes.  The quarterly UI reports are sent
by the State Workforce Agencies (SWAs) to BLS and form the basis of the
Bureau's establishment universe sampling frame.  These reports also are
used to produce the quarterly QCEW data on total employment and wages and
the longitudinal BED data on gross job gains and losses.  Another important
Bureau use of the QCEW data is in the Current Employment Statistics (CES)
program.
   
   In the BED program, the QCEW enhanced UI records are linked across quar-
ters to provide a longitudinal history for each establishment.  The linkage
process allows the tracking of net employment changes at the establishment
level, which in turn allows the estimation of jobs gained at opening and
expanding establishments and jobs lost at closing and contracting estab-
lishments.
   
Coverage
   
   Employment and wage data for workers covered by state UI and Unemploy-
ment Compensation for Federal Employees (UCFE) laws are compiled from quar-
terly contribution reports submitted to the SWAs by employers.  In addition
to the quarterly contribution reports, employers who operate multiple estab-
lishments within a state complete a questionnaire, called the "Multiple Work-
site Report," which provides detailed information on the location of their
establishments.  These reports are based on place of employment rather than
place of residence.  UI and UCFE coverage is broad and basically comparable
from state to state.
   
   Major exclusions from UI coverage are self-employed workers, religious
organizations, most agricultural workers on small farms, all members of the
Armed Forces, elected officials in most states, most employees of railroads,
some domestic workers, most student workers at schools, and employees of
certain small nonprofit organizations.
   
   Gross job gains and gross job losses data in this release do not report
estimates for government employees or private households (NAICS 814110),
and do not include establishments with zero employment over three quarters.
Data from Puerto Rico and the Virgin Islands also are excluded from the
national data.
   
Unit of analysis
   
   Firms, rather than establishments, are used in the tabulation of these
size-class statistics.  An establishment is defined as an economic unit
that produces goods or services, usually at a single physical location, and
engages in one or predominantly one activity.  A firm is a legal business,
either corporate or otherwise, and may consist of several establishments.
Firm-level data are compiled based on an aggregation of establishments
under common ownership by a corporate parent using employer tax identifi-
cation numbers.  The firm level is more consistent with the role of cor-
porations as the economic decision makers than each individual establish-
ment.  Moreover, the firm level is consistent with similar data from other
sources.
   
   Total gross job gains and gross job losses reported in this release are
lower than previously released data by establishment, as some establishment
gains and losses within a firm are offset during the aggregation process.
However, the total net changes in employment are the same for not seasonally
adjusted data and are similar for seasonally adjusted data.

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Concepts and methodology
   
   The Business Employment Dynamics data measure the net change in employ-
ment at the establishment or firm level.  These changes come about in one
of four ways.  In the BED statistics by size of firm, a net increase in
employment can come from either opening firms or expanding firms.  A net
decrease in employment can come from either closing firms or contracting
firms.  Gross job gains include the sum of all jobs added at either opening
or expanding firms.  Gross job losses include the sum of all jobs lost in
either closing or contracting firms.  The net change in employment is the
difference between gross job gains and gross job losses.
   
   The formal definitions of firm-level employment changes are as follows:
   
   Openings.  These are either firms with positive third-month employment
for the first time in the current quarter, with no links to the prior quar-
ter, or with positive third-month employment in the current quarter follow-
ing zero employment in the previous quarter.
   
   Expansions.  These are firms with positive employment in the third month
in both the previous and current quarters, with a net increase in employment
over this period.
   
   Closings.  These are either firms with positive third-month employment
in the previous quarter, with no employment or zero employment reported in
the current quarter.
   
   Contractions.  These are firms with positive employment in the third
month in both the previous and current quarters, with a net decrease in
employment over this period.
   
   All firm-level employment changes are measured from the third month of
each quarter.  Not all firms change their employment levels; these firms
count towards estimates of total employment, but not for levels of gross
job gains and gross job losses.
   
   Gross job gains and gross job losses are expressed as rates by dividing
their levels by the average of employment in the current and previous quar-
ters.  This provides a symmetric growth rate.  The rates are calculated
for the components of gross job gains and gross job losses and then summed
to form their respective totals.  These rates can be added and subtracted
just as their levels can.  For instance, the difference between the gross
job gains rate and the gross job losses rate is the net growth rate.
   
   Though the aggregation for measuring the BED size-class data is by firm,
the linkage process matches records at the establishment level.  Records
are linked across two quarters by their unique establishment identifica-
tion numbers (SWA-ID).  Between 95 to 97 percent of establishments iden-
tified as continuous from quarter to quarter are matched by SWA-ID.  The
rest are linked in one of three ways.  The first method uses predecessor
and successor information, identified by the states, which relates records
with different SWA-IDs across quarters.  Predecessor and successor relations
can come about for a variety of reasons, including a change in ownership, a
firm restructuring, or a UI account restructuring.  If a match cannot be at-
tained in this manner, a probability-based match is used.  This match at-
tempts to identify two establishments with different SWA-IDs as continuous.
The match is based upon comparisons such as the same name, address, and phone
number.  Third, an analyst examines unmatched records individually and makes
a possible match.
   
   In order to ensure the highest possible quality of data, SWAs verify with
employers and update, if necessary, the industry, location, and ownership
classification of all establishments on a 3-year cycle.  Changes in establish-
ment classification codes resulting from the verification process are intro-
duced with the data reported for the first quarter of the year.  Changes re-
sulting from improved employer reporting also are introduced in the first
quarter.

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Dynamic sizing methodology
   
   The method of dynamic sizing is used in calculations for the BED firm
size-class data series.  Dynamic sizing allocates each firm's employment
gain or loss during a quarter to each respective size class in which the
change occurred.  For example, if a firm grew from 2 employees in quarter
1 to 38 employees in quarter 2, then, of the 36-employee increase, 2 would
be allocated to the first size class, 5 to the size class 5 to 9, 10 to
size class 10 to 19, and 19 to size class 20 to 49.
   
   Dynamic sizing provides symmetrical firm-size estimates and eliminates
any systematic effects which may be caused by the transitory and reverting
changes in firms' sizes over time.  Additionally, it allocates each job gain
or loss to the actual size class where it occurred.
   
   Besides dynamic sizing, four other methodologies were considered:
quarterly base sizing, end sizing, mean sizing, and annual base sizing.
Quarterly base sizing classifies firms into size categories based on
the number of employees in the previous quarter.  End sizing classifies
firms into size categories based on the number of employees in the current
quarter.  Mean sizing is a compromise between these two methods and clas-
sifies firms based on the average size during month three of the current
and previous quarters.  Annual base sizing classifies a firm based upon
the most recent first quarter.
   
   For firms that are growing and that move from one size class to another,
base sizing results in statistics which indicate that employment growth is
coming from smaller firms, whereas end sizing results in statistics which
indicate that employment growth is coming from larger firms.  Similarly,
for firms that are contracting and that move from one size-class category
to another, base sizing results in statistics which indicate that employment
decline is coming from larger firms, whereas end sizing results in statistics
which indicate that employment decline is coming from smaller firms.  
   
Seasonal adjustment
   
   Over the course of a year, the levels of employment and the associated
job flows undergo sharp fluctuations due to such seasonal events as changes
in the weather, reduced or expanded production, harvests, major holidays,
and the opening and closing of schools.  The effect of such seasonal vari-
ation can be very large.
   
   Because these seasonal events follow a more or less regular pattern each
year, their influence can be eliminated by adjusting these statistics from
quarter to quarter.  These adjustments make nonseasonal developments, such
as declines in economic activity, easier to recognize.  For example, the
large number of youths taking summer jobs is likely to obscure other changes
that have taken place in June relative to March, making it difficult to de-
termine if the level of economic activity has risen or declined.  However,
because the effect of students finishing school in previous years is known,
the statistics for the current year can be adjusted to allow for a comparable
change.  The adjusted figures provide a more useful tool with which to ana-
lyze changes in economic activity.
   
   The employment data series for opening, expanding, closing, and con-
tracting firms are independently seasonally adjusted; net changes are
calculated based on the difference between gross job gains and gross job
losses.  Additionally, employment levels are independently seasonally
adjusted to calculate the seasonally adjusted rates.  Concurrent seasonal
adjustment is run using X-12 ARIMA.  Seasonally adjusted data series for
total private are the sum of seasonally adjusted data of all sectors, in-
cluding the unclassified sector, which is not separately published.
   
   The net over-the-quarter change derived by summing the BED component
series will differ from the net employment change estimated from the
seasonally adjusted total private employment series from the CES program.
The intended use of BED statistics is to show the dynamic labor market
changes that underlie the net employment change statistic.  As such, data
users interested particularly in the net employment change, and not in the
gross job flows underlying this change, should refer to CES data for over-
the-quarter net employment changes.

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Reliability of the data
   
   Since the data series on Business Employment Dynamics are based on
administrative rather than sample data, there are no issues related to
sampling error.  Nonsampling error, however, still exists.  Nonsampling
errors can occur for many reasons, such as the employer submitting cor-
rected employment data after the end of the quarter or typographical
errors made by businesses when providing information.  Such errors,
however, are likely to be distributed randomly throughout the dataset.
   
   Changes in administrative data sometimes create complications for the
linkage process.  This can result in overstating openings and closings
while understating expansions and contractions.  The BLS continues to
refine methods for improving the linkage process to alleviate the effects
of these complications.
   
   The BED data series are subject to periodic minor changes based on
corrections in QCEW records, updates on predecessors and successors
information, and seasonal adjustment revisions.
   
Additional statistics and other information
   
   Several other programs within BLS produce closely related information.
The QCEW program, also known as the ES-202 program, provides both quarterly
and annual estimates of employment by state, county, and detailed industry.
News releases on quarterly county employment and wages are available upon
request from the Division of Administrative Statistics and Labor Turnover,
Bureau of Labor Statistics, U.S. Department of Labor, Washington, DC 20212;
telephone 202-691-6567; (http://www.bls.gov/cew/); (e-mail: QCEWInfo@bls.gov).
   
   The CES program produces monthly estimates of employment, its net change,
and earnings by detailed industry.  These estimates are part of the Employ-
ment Situation report put out monthly by BLS.
   
   The Job Openings and Labor Turnover Survey (JOLTS) program provides monthly
measures of job openings, as well as employee hires and separations.
   
   Information in this release will be made available to sensory impaired
individuals upon request.  Voice phone:  202-691-5200; TDD message referral
number: 1-800-877-8339.

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