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Understanding Business Dynamics: An Integrated Data System for America’s Future
young and small businesses, the characteristics of business owners, outsourcing, interactions among firms, the impact of natural disasters on local economic activity, and other critical issues.
A simple but useful generalization about the U.S. statistical system is that it has been designed to measure levels of business activity—in terms such as business outputs, and business inputs like labor and physical capital—on a timely and accurate basis. Statistical agencies have traditionally focused greater attention on larger, more mature businesses. This approach is capable of producing accurate and cost-effective estimates of aggregate economic activity because a relatively modest number of businesses produce a large share of total output and employ a large share of economic inputs. It is also easier to identify and promptly capture the activity of large, long-established businesses.
But there are drawbacks to this approach; the focus on levels as opposed to growth has led to an underemphasis on young and small businesses. These businesses account for a relatively small share of the level of economic activity but are critically important in measuring and understanding the growth of economic activity. Also when business dynamics vary systematically with business size or age, a focus on larger and more mature units can yield less accurate, potentially misleading, measures of changes in economic activity. For example, given the current focus, the tracking of the response of U.S. businesses to the business cycle is likely mismeasured to the extent that young and small businesses are especially sensitive to the cycle. Equally importantly, a focus on larger and more mature units limits our ability to measure and analyze the early life-cycle dynamics of businesses and to evaluate the factors that impact business formation, selection, and growth. Thus, a full understanding of economic progress and business dynamics requires careful attention to data on younger and smaller businesses.
Over the past decade or so, U.S. statistical agencies have greatly improved the measurement of business activity through the intense development of longitudinal databases constructed from administrative records. For example, the Bureau of Labor Statistics (BLS) has developed the Business Employment Dynamics database, and now regularly produces quarterly statistics on gross job gains and losses by industry, region, and business size class. The Census Bureau has developed the Quarterly Workforce Indicators, which provide measures of worker separations and accessions and related measures of job gains and losses at the local economy level. The Census Bureau has also developed the Longitudinal Business Database (LBD) from its business registers and used the LBD to produce new public-use statistics.1 The LBD also serves as a micro-level analytical database for
In a closely related program, the Census Bureau has been using its business registers to produce aggregate statistics on the dynamics of U.S. businesses in the Statistics on U.S. Businesses program.