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September, 2001, Vol. 124, No. 9

Job creation and destruction within Washington and Baltimore

R. Jason Faberman

It is well known that there exists a large disparity in the growth rates of central cities and suburbs. In a host of metropolitan areas, central city employment has declined, while suburban employment has flourished. Understanding the nature and causes of these growth patterns are critical to those seeking to stimulate the economy of a central city or deal with suburban expansion. One previously unexplored aspect of metropolitan growth patterns is their gross job flow components—employment changes due to establishment startups, shutdowns, expansions, and contractions. At its core, employment growth is simply the net result of these four components. An examination of those components reveals much more about the employment patterns within a metropolitan area than does an analysis of employment growth alone. Consequently, this article analyzes just how much gross job flows relate to the observed differences in growth between central cities and suburbs.

Gross job flows have recently become the primary focus of several economic studies. Previously, economists relied almost entirely on aggregated data for their research purposes, particularly in studies involving employers and labor demand. This practice, however, allowed researchers to observe only the net changes in economic variables from period to period. A few economists, notably Timothy Dunne, Mark J. Roberts, and Larry Samuelson,¹  as well as Steven Davis and John C. Haltiwanger,²  appealed to establishment-level microdata for their analyses of the U.S. macroeconomy and aggregate labor dynamics. By using those data, they were able to analyze both employment growth and gross job flows for the economy. Together, these variables gave a much clearer picture of how the labor market functioned, and they changed how many economists perceived the way the economy worked.

This excerpt is from an article published in the September 2001 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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Footnotes
1 Timothy Dunne, Mark J. Roberts, and Larry Samuelson, "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, Winter 1988, pp. 495–515; "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, January 1989, pp. 48–71; and "The Growth and Failure of U.S. Manufacturing Plants," Quarterly Journal of Economics, November 1989, pp. 671–98.

2 Steven Davis and John C. Haltiwanger, "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," in NBER Macroeconomics Annual 5 (Cambridge, MA, National Bureau of Economic Research, 1990), pp. 123–68); and "Gross Job Creation, Gross Job Destruction and Employment Reallocation," Quarterly Journal of Economics, August 1992, pp. 819–63.

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