Business Establishment Dynamics and Employment Growth

Abstract

We present evidence on the contributions of business establishment dynamics - including births and deaths, expansions and contractions, and in- and out-migration - to employment growth (and decline). We use data from the National Establishment Time Series for California to estimate the contribution of each of these processes to employment growth. The evidence indicates that births of new business establishments and expansion of existing ones, coupled with their counterparts of deaths and contractions of existing establishments, are the prime determinants of employment growth. Business relocation, while often the focus of public debate regarding the business climate, plays a negligible role. Overall, business establishment births and deaths are the largest contributors to job creation and destruction, and births of new firms are particularly important in gross and net job creation.