B U S I N E S S DY N A M I C S STAT I ST I C S B R I E F I N G :

High Growth and Failure of Young Firms

Fourth in a series of reports using data from the

U.S. Census Bureau’s Business Dynamics Statistics
March 2009

John Haltiwanger
University of Maryland

Ron Jarmin
U.S. Bureau of the Census

Javier Miranda
U.S. Bureau of the Census
[2] Business Dynamics Statistics Briefing: High Growth and Failure of Young Firms

About the Business Dynamics Statistics

The Business Dynamics Statistics (BDS) is a product of the U.S. Census Bureau that measures business
openings and closings, startups, job creation and job destruction by firm size, age, industrial sector, and
state. The U.S. economy is comprised of more than 6 million establishments with paid employees. The
population of these businesses is constantly churning-some businesses grow, others decline, and yet others
close. New businesses constantly replenish this pool. The BDS monitors this activity to provide a picture of
the dynamics underlying aggregate net employment growth. More information about the BDS can be found
at http://www.ces.census.gov/index.php/bds/bds_home
 Business Dynamics Statistics Briefing: High Growth and Failure of Young Firms [2]

High Growth and Failure of Young Firms

Newly released data from the U.S. Census Bureau,
the Business Dynamics Statistics (BDS)1, allow
unprecedented tracking of business dynamics for
U.S. firms and establishments. This is the fourth in a
series of briefings to highlight some key features of
the data.
What is the role of young entrepreneurial firms in
job creation? Until now, researchers lacked
comprehensive data broken out by firm age necessary
for understanding this fundamental dynamic in our
economy. A novel feature of the BDS is that
employment growth and market selection can be
tracked by firm age for the universe of U.S. private,
non-agricultural businesses.
Figure 1 shows the relationship between firm age,
and both the net employment growth rate for
continuing establishments and the job destruction rate
from establishment exits.2 Omitted from the chart are
establishments of new startup firms who, by
definition, only contribute to job creation. Startups
account for about 3 percent of the stock of all jobs.
The chart shows that young firms
have higher employment growth rates,
if they survive, than older firms. For
example, establishments belonging to 25.0
very young firms (age 1) have a net
employment growth rate of about 15
percent conditional on survival, whereas 20.0
those belonging to older firms (age 29+)
have a net employment growth rate of
15.0
about 4 percent conditional on survival.
However, younger firms experience
much more employment loss due to 10.0
establishment exit, nearly 20 percent at
very young firms, than do larger firms.
The pattern for young firms is thus
one of “up or out” with very rapid net
growth for survivors balanced by a very
high exit rate. This pattern highlights the
importance of developing richer
measures of business dynamics, such as
those in the BDS. Understanding U.S.
business dynamics requires not only statistics by
business size and age, but measures of the variability
of business outcomes, as well. Lumping together all
firms of the same age is clearly misleading, given this
“up or out” dynamic. Young firms obviously are doing
both better and worse than more mature firms in
terms of growth and survival.
This briefing highlights only one dimension of the
Census Bureau’s new Business Dynamics Statistics.
The BDS includes measures of business startups,
establishment openings and closings, and
establishment expansions and contractions in terms
of both the number of establishments and the number
of jobs. The BDS data provide these new statistics
for the 1977-2005 period on an annual basis with
classifications for the total U.S. private sector, by
broad industrial sector, by firm size, by firm age,
and by state. Further information about the BDS
can be found at: http://www.ces.census.gov/index.php/
bds/bds_home
Figure 1
Employment Dynamics by Firm Age, 1987-2005
5.0
0.0
1 2 3 4 5 6-10 11-15 16-20 21-25 26-28 29+
Firm Age
Net (Survivors) Job Destruction from Exit

Note: Establishments are classified by the age of the parent firm.

1. The BDS was developed at the Census Bureau’s Center for Economic Studies with support from the Census Bureau and the Ewing Marion Kauffman Foundation.
2. These rates are computed with total employment as the denominator. Detailed definitions are available at
http://www.ces.census.gov/index.php/bds/bds_overview#_Concepts_and_Methodology
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