Business Growth Charts
One of my favorite parts of the research I did for Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation was the creation of business growth charts. Any parent has seen growth chats in their doctor's office when they take in a child. They are a means of benchmarking your child's growth against the trends of past generations, providing you an objective way of understanding if your child is growing slowly or somehow might be showing signs of sickliness. The business growth charts were modeled on this concept, and while this piece of my analysis didn’t make it into the final paper, I wanted to offer a snapshot of it for some of my readers on Data Maven because I think it is a very simple format that can tell a powerful, if complicated message.
The chart above uses Bureau of Labor Statistics data on establishments to show the average employment of surviving establishments over time. What you see is the general pattern of growth, on the average, for those establishments remaining in operation over time. This is the point that we tried to make in a simplified way in the paper. But this BLS data is also very interesting because it shows simply the steady leak in jobs at all points in young establishments life spans. Each colored line follows a cohort of businesses and tells the average employment of a business in that cohort after so many years.
Unfortunately, this is one area of the report which got very confusing because the BLS and Census data show such different patterns. The Census data, shown below, also for establishments, does not share the same easy to see trends; however, what I ended up showing in the report was how both series do show a decline in the average per establishment growth in employment from year 0 to 2 and age 2 to 5.
As more countries are able to track business cohorts, all the businesses born in an economy in a given year, it becomes increasingly possible to apply some of the same principles that are used in studies of population dynamics or epidemiology to the study of business dynamics. Indeed, in many, many ways businesses exhibit many similarities to populations of people. Tomorrow, I’ll explore a bit more how businesses cohorts, like people, show signs of imprinting due to the macroeconomic factors present in their early years.
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