Firm Dynamics, Job Creation and Entrepreneurship in the U.S. 

John HaltiwangerUniversity of Maryland and NBERUniversity of Maryland and NBER

*Without implication, this presentation draws heavily on joint work with Steven Davis,Without implication, this presentation draws heavily on joint work with Steven Davis, Jason Faberman, Lucia Foster, Ron Jarmin, C.J. Krizan, Javier Mirandaand Chad Syverson

OverviewOverview

• Declining trend in job and worker flows in U SDeclining trend in job and worker flows in U.S.– Accelerated post‐2000Is the U S becoming less dynamic and less– Is the U.S. becoming less dynamic and less flexible? 

• Business Startups and Young Businesses• Business Startups and Young Businesses Disproportionately Create JobsD li i T d i B i S ( d• Declining Trend in Business Startups (and accordingly in Young Businesses)

Remarks By Federal Reserve Chairman Ben kBernanke

One leading explanation for the strong U S productivity…One leading explanation for the strong U.S. productivity growth is that labor markets in the United States tend to be more flexible and competitive, market characteristics that have allowed the United States to realize greater economichave allowed the United States to realize greater economic benefits from new technologies.  For example, taking full advantage of new information and communication technologies may require extensive reorganization of worktechnologies may require extensive reorganization of work practices, the reassignment and retraining of workers, and ultimately some reallocation of labor among firms and industriesindustries…

August 31, 2006

10.010.0 Percent of Employment

Quarterly Job Creation and Destruction Rates, U.S. Private Sector

9.09.0

8.08.0

6.0

7.0

6.0

7.0

5.0

6.0

5.0

6.0

Job Destruction

Job Creation

4.04.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source:  BED and Davis, Faberman and Haltiwanger (2012)

Quarterly Job Creation and Hires Rates, U.S. Private Sector

18 011 0 Percent of Employment

17.0

18.0

10.0

11.0 p y

15.0

16.0

8.0

9.0

13.0

14.0

6.0

7.0

11 0

12.0

4 0

5.0

Job Creation (left axis)

10.0

11.0

3.0

4.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Hires (right axis)

Source:  BED, JOLTS and Davis, Faberman and Haltiwanger (2012)

Quarterly Job Destruction, Layoffs and Quit Rates, U.S. Private Sector

10.010.0 Percent of Employment

9.09.0

8.08.0

6.0

7.0

6.0

7.0

5.05.0

Job Destruction

Layoffs

4.04.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Quits

Source:  BED, JOLTS and Davis, Faberman and Haltiwanger (2012)

7.010.0 Percent of EmploymentJob Destruction (left axis)

Job Destruction, Layoffs and Unemployment Inflows are tightly linked

6.09.0

( )

Layoffs (Left Axis)

Unemployment Inflows, CPS (Left Axis)

Initial UI Claims (Right Axis)

5.08.0

3.0

4.0

6.0

7.0

2.0

3.0

5.0

6.0

1.04.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source:  Davis, Faberman and Haltiwanger (2012)

Excess Worker Reallocation “Churn” and Job Reallocation

18 0

19.0

20.0 Percent of Employment

16.0

17.0

18.0

14.0

15.0

11.0

12.0

13.0 Job Reallocation

Excess Worker Reallocation 

10.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(Churn)

Source:  BED and JOLTS – Tabulations from Davis, Faberman and Haltiwanger (2012)

Job Creation and Destruction RatesSource: U.S. Census Bureau, Business Dynamics Statistics

18 0

19.0

20.0

16.0

17.0

18.0

14.0

15.0

Rate

12.0

13.0

10.0

11.0

Job_Creation_Rate Job_Destruction_Rate Job Creation (HP Trend) Job Destruction (HP Trend)

Net Job Creation by Firm Size and Firm Age, U.S. Private Sector, 2005

Firm Size (Base Year)

Firm Age a ) 1 to 4 b) 5 to 9c) 10 to

19d) 20 to

49e ) 50 to

99f) 100 to

249g) 250 to

499h) 500 to

999i) 1000 to

2499j) 2500 to

4999k) 5000 to

9999 l) 10000+ All) 0 731 515 503 644 498 317 553 181 313 511 292 348 157 120 151 518 186 087 131 178 D D 3 518 419a) 0 731,515 503,644 498,317 553,181 313,511 292,348 157,120 151,518 186,087 131,178 D D 3,518,419

b) 1 79,759 -12,547 -20,836 -47,837 -41,006 -57,188 -48,830 -5,476 -14,532 -20,131 211 -408 -188,821c) 2 26,506 -24,840 -31,883 -44,488 -26,738 -18,026 -9,049 -13,579 -23,615 -12,782 D D -178,494d) 3 7,535 -22,650 -26,855 -37,824 -15,918 -14,813 -8,981 -7,548 -11,581 -12,114 D D -150,749e) 4 20 456 18 442 23 212 29 616 641 9 816 4 301 5 436 298 4 011 D D 74 035e) 4 20,456 -18,442 -23,212 -29,616 641 -9,816 -4,301 -5,436 -298 -4,011 D D -74,035f) 5 4,808 -19,792 -24,392 -29,425 -14,870 -6,222 -2,449 -6,849 -293 -3,418 D D -102,902

g) 6 to 10 14,577 -71,332 -99,235 -110,111 -40,652 -1,324 -9,452 5,437 -20,693 -13,945 -9,903 17,928 -338,705h) 11 to 15 15,663 -47,730 -67,923 -81,876 -40,432 -27,666 -9,530 2,179 -2,028 22,441 6,140 69,409 -161,353i) 16 to 20 5 673 36 856 58 236 71 299 35 979 9 780 5 725 10 200 3 204 12 615 10 491 2 158 153 974i) 16 to 20 5,673 -36,856 -58,236 -71,299 -35,979 9,780 -5,725 10,200 3,204 12,615 10,491 2,158 -153,974j) 21 to 25 2,923 -28,173 -42,609 -51,490 -22,246 -13,346 3,901 10,269 36,484 10,075 9,889 -56,563 -140,886

k) 26+ 1,016 -38,599 -71,235 -107,390 -48,873 10,309 19,924 85,473 56,436 143,701 58,245 307,517 416,524m) ALL 910,431 182,683 31,901 -58,175 27,438 164,036 82,628 226,188 209,171 253,609 90,973 360,214 2,481,097

Source: U.S. Census Bureau, Business Dynamics Statistics at http://www.ces.census.gov/index.php/bds/bds_home

4.00

Average Annual Net Job Creation (March 2003 to March 2007) 

3.50

2.50

3.00

2.00

Millions of Job

s

1.00

1.50

0.50

0.00All Private Sector Startups

Source:  BDS

5

Job Creation from New Firms and New Establishments of Existing Firms (1980‐2010)

4

3

2

1

Source: BDS

0Avg Annual Job Creation from New Firms ("Startups") Avg Annual Job Creation from New Establishments of Existing Firms

0.2Up or Out Dynamics of Young U.S. Firms

0.15

0.1

0.05

0

Firm Age

Net Employment Growth (Continuing Firms) Job Destruction from Exit

1

90th and 10th Percentiles of Net Employment Growth Rates for Surviving  U.S. Private Sector Firms by Firm Age 

0.8

0.4

0.6

0

0.2

‐0.2

01 2 3 4 5 6 to 10 11 to 15 16+

‐0.6

‐0.4

Firm Age ClassFirm Age Class

10th Percentile 90th Percentile

Source:  Firm‐level data used by Haltiwanger, Jarmin and Miranda (2011)

Industry as Predictor of Size and h fGrowth of Firms?

R‐squared from 6‐digit NAICS effects

Probability Firm has less than 20 employees 0.12

Net Firm Growth Rate (All Firms) 0.06( )

Net Firm Growth Rate (Small Firms) 0.06

Probability firm is a high growth firm (defined as Net_Rate>.2)

0.04

Probability firm is a high growth firm (defined as: Net_Rate > .2 and Net_Level > 10 )

0.03

Sample:  All U.S. Private Sector Firms, 2003‐05

 Share of Employment in Startups by Firm Size Class

0.25

0.2

0.1

0.15

Sh

are

0.05

0

0.200Net Employment Growth by Base Year Firm Size

0.150

0.1000.100

0.050

0.000

-0.050Base Year Size Base Year Size with Age Controls

What type of businesses create jobs?What type of businesses create jobs?

Small (1‐500) Large (500+)Small (1 500) Large (500+)

Source:  BDS

60

Startups and High Growth (Annual Growth>25 percent) Existing Firms Disproportionately Create Jobs, U.S. Private Sector

50

40

30

20

10

0Startups High Growth Existing Firms

Share of Firms Share of Job Creation

Source:  Tabulations from Firm‐Level Data Used in Haltiwanger, Jarmin and Miranda (2011)

Productivity of Young Businesses Relative to Mature Surviving Incumbents, U.S. Retail Trade

2.80%1 20%

3%5%

1.20%

Young Exits Mature Exits Young Survivors Young Survivors Five Years LaterYears Later

31 60%

-26.20% -27%

-31.60% -32%

Single Unit Establishment Firms All establishments

5Annual Job Creation from Startups, U.S. Private Sector, BDS

4

3

e

2

Rate

1

0

Source:  BDS

Job Creation Startups Startups (HP Trend)

1525

Job Creation, Job Destruction and Employment (Age<5)

1020

515

010

P t f E l t J b C ti C t ( i ht i ) J b D t ti C t ( i ht i )

Source:  BDS  

Percent of Employment  Job Creation Component (right axis) Job Destruction Component (right axis)

A I d t Si St t MU

"Peak to Peak"  Decline in Job Creation from Avg 87‐89 to Avg 04‐06

0.00%Actual Age Only Controls Industry Only Controls

Age, Industry, Size, State, MU Controls

‐10 00%

‐5.00%

‐15.00%

10.00%

‐20.00%

‐25.00%

Source:  Haltiwanger, Jarmin and Miranda (2012)

‐30.00%

Peak to Peak Changes Within State (87/89 to 04/06)

WithiWithin State

Avg Change in Job Creation for Continuers (JC) 17 59%Avg Change in Job Creation for Continuers (JC) -17.59%

Avg Change in Startup Rate -25.01%

Avg Change in Job Destruction (JD) -19.34%

Std Dev of Change in JC 8.16%

Std Dev of Change inJD 10.75%

Std Dev of Change in Startup Rate 13 57%Std Dev of Change in Startup Rate 13.57%

Source:  Haltiwanger, Jarmin and Miranda (2012)

BACKGROUND/EXTRA SLIDESBACKGROUND/EXTRA SLIDES

4.00.85MA(3) of CPS Unemployment Escape RateCPS Unemployment Inflow Rate

Unemployment Inflow and Escape Rates, Monthly, CPS

3.5

0.70

0.75

0.80 CPS Unemployment Inflow Rate

2.5

3.0

0.60

0.65

2.0

0.45

0.50

0.55

1.0

1.5

0.35

0.40

0.5

1.0

0 20

0.25

0.30

0.00.15

0.20

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Gross Job Creation Levels by Employer Sizey p y

2.8

3.0

2.8

3.0

2.0

2.2

2.4

2.6

2.0

2.2

2.4

2.6

1.2

1.4

1.6

1.8

1.2

1.4

1.6

1.8

Job

Cre

atio

n(m

illion

s)

0.4

0.6

0.8

1.0

0.4

0.6

0.8

1.0

(1 19) (20 99)Size Class

0.0

0.2

0.0

0.2

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Quarter

(1-19) (20-99)

(100-499) (500+)

Source:  BLS BED 

Quarter

Job Destruction Levels by Employer SizeJob Destruction Levels by Employer Size

2.8

3.0

2.8

3.0

2.0

2.2

2.4

2.6

2.0

2.2

2.4

2.6

on

1.2

1.4

1.6

1.8

1.2

1.4

1.6

1.8

Job

Des

truct

io(m

illio

ns)

0.4

0.6

0.8

1.0

0.4

0.6

0.8

1.0

J

(1-19) (20-99)Size Class

0.0

0.2

0.0

0.2

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Quarter

( ) ( )

(100-499) (500+)

Source:  BLS BED

Qua te

8000.08000.0Hires by Employer, Size Class, JOLTS (Cumulated to Quarter)

6000 06400.06800.07200.07600.0

6000 06400.06800.07200.07600.0

(1 - 9) (10 - 49)

(50 - 249) (250 - 999)

(1000 - 4999) (5000+)

Size Class

4400.04800.05200.05600.06000.0

4400.04800.05200.05600.06000.0

s ands

)

2400 02800.03200.03600.04000.0

2400 02800.03200.03600.04000.0

Hire

(thou

sa

800 01200.01600.02000.02400.0

800 01200.01600.02000.02400.0

0.0400.0800.0

0.0400.0800.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

QQuarter

Hires Rates by Employer, Size Class, JOLTS, Quarterly Avg of Monthly Rates

17 018.0

19.0

20.0

17 018.0

19.0

20.0

(1 - 9) (10 - 49)

(50 - 249) (250 - 999)

Size Class

13 0

14.0

15.0

16.0

17.0

13 0

14.0

15.0

16.0

17.0 (50 249) (250 999)

(1000 - 4999) (5000+)

9 0

10.0

11.0

12.013.0

9 0

10.0

11.0

12.013.0

Hire

s(r

ate)

0

6.0

7.0

8.0

9.0

0

6.0

7.0

8.0

9.0

3.0

4.0

5.0

3.0

4.0

5.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2 2 2 2 2 2 2 2 2 2 2 2

Quarter