Survival and Longevity in the Business Employment Dynamics Data

Abstract

The 1 990s saw many sectors of our economy grow apace, through either mergers, buyouts, or new openings. Signs of the times (figuratively and literally, as one bank bought out or merged with another) were on hometown banks, and the fruits of new construction festooned many neighborhoods. In addition to new homes going up, new businesses were moving in to take advantage of the growing wealth in the United States. Our understanding of new businesses has been limited largely to the manufacturing sector and to the scale of the firm, not to the establishment. 1 The main reason for this shortcoming is limitations on the data available for study. In many countries—including the United States until recently—manufacturing was the only sector for which data with the capability of linking firms across time were compiled on a regular basis. Thus, except for firms in the manufacturing sector, no history of a firm’s behavior could be constructed. This research summary examines the business survival characteristics of all establishments that started in the United States in the late 1990s, when the boom of much of that decade was not yet showing signs of weakness. The analysis presented builds on and extends a report from the Minnesota Department of Economic Security on business churning from 1993 to 1995. 2 The report profiled business births, survival rates, and deaths during the early years of the decade, when the boom was just starting. This article follows the businesses reported on into the recession of 2001 to see how they fared once the economy took a downturn. The analysis follows a birth cohort from the second quarter of 1998 through the next 16 quarters, differing from previous analyses in both focus and time frame. The focus is on only completely new entrants—that is, new firms which open a single establishment. The analysis encompasses all sectors of the economy; survival rates of establishments, as well as several measures of employment, are reported and compared across sectors.

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