[Accessibility Information]

May 2005, Vol. 128, No. 5

Report

Amy E. Knaup
Economist, Office of Employment and Unemployment Statistics, Bureau of Labor Statistics.  All empirical work in this article is based on the author’s calculations. Any views expressed are those of the author and do not necessarily reflect the policies of the Bureau of Labor Statistics or the views of other BLS staff members.
E-mail: knaup.amy@bls.gov

Download full text (PDF 36K)

Excerpt from the report:

The 1990s 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.

Top

Footnotes
1 See, for example, 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; John R. Baldwin and Paul K. Gorecki, "Firm Entry and Exit in the Canadian manufacturing sector, 1970–1982," Canadian Journal of Economics, May 1991, pp. 300–23; Jose Mata and Pedro Portugal, "Life Duration of New Firms," Journal of Industrial Economics, September 1994, 227–45; David Audretsch, "New-Firm Survival and the Technological Regime," Review of Economics and Statistics, August 1991, pp. 441–50; and David B. Audretsch and Talat Mahmood, "New-Firm Survival: New Results Using a Hazard Function," Review of Economics and Statistics, February 1995, pp. 97–103. These studies have been concerned mainly with the behavior of firms even when the unit of collection is the establishment.

2 Business Births and Deaths: The Dynamics of Business Churning in Minnesota (Minnesota Department of Economic Security, Research and Statistics Office, May 1997).