Wednesday, October 1, 2014

How are Job Creation and Loss related to Firm Age?

By Lecia Parks Langston, Senior Economist

Tracking job loss and creation by the age of a firm using the Census Bureau’s Local Employment Dynamics program reveals many facets of Utah’s labor market generally concealed by movements in the aggregate numbers. The relatively recent addition of firm-age characteristics allows economists to determine how firms of different ages contribute to overall job losses and gains over time.




First, a few explanations about the data used. Four-quarter moving averages are provided in the charts to ameliorate seasonality. Also, keep in mind that firm age is determined nationally. For example, In-N-Out Burger is a fairly recent addition to Utah’s employer pool. However, the first U.S. In-N-Out location opened in 1948. In this database, the firm would then be considered a mature (11 years or older) firm rather than a six year-old company.

 In addition, this data covers only “stable” employment at private firms. To be considered a stable job, an individual must have received earnings from the same employer for three consecutive quarters. Focusing on stable employment eliminates temporary and/or seasonal employment fluctuations.

Finally, these figures are calculated at the establishment level. In each age category, some firms contracted and some expanded during a particular quarter. Yet aggregate numbers may show a substantial increase or decrease. Underlying the aggregate change is an economy in a constant state of churn at the individual and firm levels.

A few points about firm age and job creation and loss in Utah follow.

• During the recession, only young firms (one year old or less) showed net job gains. In other words, new jobs at start-ups somewhat mitigated the effects of the downturn on the labor market.

• More mature firms (11 years and older) typically produce the largest share of job losses as well as job gains. Job losses ranged from a high of 65 percent in 2000 to a low of 56 percent in 2008. Mature-firm’s share of job gains measured lowest in 2000 (51 percent) and highest in 2011 (59 percent).

• Medium-aged (two to 10 years) firms accounted for the next largest share of job creation and destruction. Interestingly, these firms showed their largest share of losses during the recession when mature-firm losses were lowest.

• Newly-born firms (a year old or less), generated a notably higher share of firm gains than firm losses. Of course, young firms would be more likely to add employment as they begin the start-up process.


• In general, mature and medium-aged firms accounted for a larger share of job losses than of job gains. However, during the worst point of the recession, this relationship reversed for mature firms.

• Since 2003, the share of job gains provided by mature firms has trended upward.

• Young firms generated their highest share of job gains during the previous 2001-2008 expansion.

• In general, young firms showed higher net gains between 2000 and 2013 than did mature and medium-aged firms.

• Medium-aged firms in the accommodations and food service industry rarely showed net employment gains.

• All ages of firms in the healthcare/social services industry showed net employment gains between 2001 and 2011—right through the recession.

• Mature firms in the information industry experienced significant net job losses in the 2001 recession.

• Older management-of-company firms have continued to show net job losses since the recession.

• In the transportation/warehousing industry, mature firms dominate both job losses and gains.

• The retirement of older workers (55 and older) is apparent among the net job losses in both mature and medium-aged firms. However, start-ups consistently show net employment gains for older workers.

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