ANNUAL MEASURES OF JOB CREATION AND JOB DESTRUCTION CREATED FROM QUARTERLY ES-202 MICRODATA Joshua C. Pinkston and James R. Spletzer Bureau of Labor Statistics 2 Massachusetts Avenue NE, Suite 4945, Washington DC 20212 1) Introduction Following a specific establishment over time in longitudinal microdata is often quite complex, especially through periods of corporate restructuring. Failure to accurately define an establishment as surviving over time breaks a continuous linkage and thus falsely defines both a death and a birth. Although the importance of constructing accurate longitudinal linkages is well known, certain unique issues arise when trying to analyze establishment survival and employment dynamics across a long period of time. In this paper, we highlight the issues involved in extending longitudinal linkage algorithms across more than two consecutive periods of cross- sectional microdata. We illustrate the empirical effects by constructing annual measures of job creation and job destruction using quarterly cross- sectional microdata from the Bureau of Labor Statistics’ ES -202 program and the associated longitudinal establishment database. 2) Longitudinal ES -202 Establishment Microdata All employers subject to state Unemployment Insurance (UI) laws are required to submit quarterly contribution reports detailing their monthly employment and quarterly wages to the State Employment Security Agencies (SESAs). After the microdata are edited and, if necessary, corrected by the State Labor Market Information staff, the states submit these data and other business identification information to the Bureau of Labor Statistics as part of the Covered Employment and Wages (ES-202) program, which is a cooperative endeavor of BLS and the States. The data gathered in the ES-202 program are a comprehensive and accurate source of employment and wages, and provide a virtual census (98%) of employees on nonfarm payrolls. The ES- 202 data serve as the sampling frame for BLS establishment surveys. For more information on the ES-202 program, see Farmer and Searson (1995) and U.S. Bureau of Labor Statistics (1997). The cross-sectional ES-202 microdata are then linked across quarters to create a longitudinal database of establishments. This longitudinal establishment database, referred to as the LDB, will be used by the BLS to generate high quality, high frequency, timely, and historically consistent information regarding not only job creation and job destruction, but also the life cycle of establishments. These statistics will expand our understanding of employment growth, by describing how many establishments are expanding or contracting and by how much these establishments are expanding or contracting. The LDB contains the entire history of quarterly microdata from 1990 through the most recent quarter available. A detailed description of the LDB is given in the April 2001 Monthly Labor Review article by Pivetz, Searson, and Spletzer, and details about the LDB record linkage system can be found in Robertson, Huff, Mikkelson, Pivetz, and Winkler (1997). 3) Creating Annual Linkages from Quarterly Microdata: The Technical Issue As part of the process of linking establishments across quarters, the LDB longitudinal linking algorithm identifies what are termed breakouts and consolidations. The term “breakout” refers to a transition from a single establishment employer to a multi-establishment employer, and the term “consolidation” refers to a transition from a multi- establishment employer to a single establishment employer. Breakouts and consolidations may be actual economic events representing business expansions and contractions, or merely administrative reporting changes due to how an employer with multiple establishments within a state reports its data. Although the BLS and the States continuously work with employers in order to obtain data at the establishment level, some employers with multiple establishments within a state report their total employment and wages in a consolidated manner. Occasionally, an employer reporting consolidated data to a state will disaggregate its data to the worksite level (or, much less frequently, vice- versa). The record linkage system used to construct the LDB creates flags for establishments involved in a breakout or consolidation. The establishments that are flagged have a one-to-one correspondence with a breakout and consolidation lookup table. For any