Business Dynamics Statistics Briefing: Job Creation, Worker Churning, and Wages at Young Businesses
16 Pages Posted: 3 Dec 2012
Date Written: November 1, 2012
It is well known that young businesses have higher net job creation rates and a higher pace of gross job creation and destruction. Using newly released statistics from the QWI by firm age and firm size, we show this well-known pattern holds in the QWI. But the QWI offer a unique perspective on additional features of the dynamics of workers and jobs by firm age and firm size. In this report we focus on two key features - worker churning and earnings dynamics.
We show that a much larger fraction of hiring at young firms is due to job creation relative to more mature firms. However, in spite of this high ratio, the difference between the hiring and job creation rates (what we call worker churning) declines with firm age. The high pace of churning at young firms is consistent with the view that young firms are undergoing a period of experimentation and trial and error. The new findings on worker churning show that this experimentation results in a high churning rate for young firms.
Worker churning rates fell substantially in the 2001 and 2007/09 recessions and also exhibit a related secular decline. The cyclical and secular declines in worker churning rates over the last fifteen years are over and above the previously documented decline in business dynamism as measured by job reallocation over the same period. Worker churning reflects the reallocation of workers across existing jobs, and the evidence here is that the pace of such churning has declined. Worker churning arguably contributes to improved match quality between workers and firms; hence, this decline potentially implies a decline in match quality in the United States. In a related fashion, it is an indicator that the U.S. labor market has become less flexible over time, at least in terms of the tendency to have workers move across firms.
The secular and cyclical declines in worker churning are connected, since, in both the 2001 and 2007/09 recessions, worker churning declined substantially and then failed to recover to the previous peak. This downward pattern is more apparent for more mature firms; in that respect, young firms are more engaged in this form of flexibility. However, we also know that the share of startups and, therefore, young firms is declining over this same period (which we verify holds in the newly released QWI data). With fewer young firms, the overall decline in worker churning is even greater.
Another new perspective on these dynamics that the QWI permits is tracking earnings per worker. We find that workers at young firms have lower earnings per worker than at more mature firms. This is not surprising, since it is clearly related to the well-known finding that workers at larger firms have higher wages and young firms tend to be small. However, we also document that the firm age wage premium has been rising over time. Thus, adding to the trend decline in the pace of startups, we also observe that earnings for workers at such startups have declined in relative terms as well.
Keywords: bds, business dynamics statistics, census, startup, young firm, young business, churn
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