The Business Employment Dynamics (BED) data set produced by the Bureau of Labor Statistics reports gross changes in employment and firms on a quarterly basis. Several weeks ago, this blog reviewed gross changes in employment and found that job creation declined during the Lost Decade. As a result, the net change in jobs was decided by the level job layoffs or closures rather than job creation at new or existing firms.
This post will provide insight into the recovery from the past two recessions from the perspective of firms. It will look at gross openings and closings, a subset of gross firm gains and losses. Gross openings include new firms, firms that have been inactive, and seasonal firms. As such they include entrepreneurs and others. Gross closings include firms that are ceasing operations permanently, temporarily, or on a seasonal basis.
The following analysis shows Colorado gross opening and closings with averages for the following periods.
• Q1 1993 to Q4 2000 (32 quarters or 96 months).
– In this period of expansion, gross firm openings exceeded gross firm closings in 31 of the 32 quarters.
The 1990s were a period of innovation and growth. There was significant job churn. Gross firm openings and closings increased at similar rates and were highly correlated.
• Q1 2001 to Q2 2003 (10 quarters or 30 months).
– In this period of decline, gross firm openings exceeded gross firm closings in 9 of the 10 quarters.
• Q3 2003 to Q1 2008 (19 quarters or 57 months).
– In this period of recovery, gross firm openings exceeded gross firm closings in 16 of 19 quarters.
• Q2 2008 to Q4 2009 (7 quarters or 21 months).
– In this period of decline, gross firm closings exceeded gross firm openings in 6 of the 7 quarters.
• Q1 2010 to present (7 quarters or 21 months).
– In this period of recovery, gross firm gains exceeded gross firm closings in 4 of the 7 quarters. The average of gross firm openings has been flat since Q3 2003. The deciding factor in net firm change was the decline in the number of gross firms closed.
Since 2003 the average number of gross firms opened has remained flat. The average number of gross firms closed determined whether the net change was positive or negative. This lack of firm openings explains why the job recovery from both recessions has been so weak.
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