Sustained High Rates Of Job Creation And Destruction In Substate Economies

Abstract

Widely utilized net employment change statistics actually mask an extremely volatile process of job creation and destruction. In the past decade economists have addressed this problem by exploiting newly available longitudinal data series to estimate these job flows and the subsequent amount of job churning at the national, state and MSA level. This study is unique in that it uses an innovative technique to capture job flows within and between industries at the local area level where longitudinal BLS data series are not available.

The geographic unit of analysis in this paper is a Cohesive Commercial Statistical Area™ (CCSA), a substate aggregate of cities and towns sharing common economic interests but not a Metropolitan Statistical Area. The paper examines job flows in two very different Massachusetts substate economies: the MetroWest CCSA, a technology sensitive research and development economy, and the South Shore CCSA, a mature economy with a competitive edge in financial services. This study establishes that a sizable portion of disaggregated job flows can be captured at a substate level using available employment data. Building upon techniques used in earlier studies, the authors confirmed very high levels of employment volatility, “job churning”, in both substate regions.

The authors found that over two decades, job reallocation rates in MetroWest averaged 9%, affecting one out of 11 jobs annually. The study traced the pattern of job creation and destruction over the course of local business cycles and found that both job creation and destruction existed during all phases of the business cycle. Although, as expected, job creation dominated the expansion phase and destruction dominated the contraction phase, the total amount of job reallocation (creation plus destruction) remained relatively stable through all stages of the business cycle. However, the composition of the job reallocation varied dramatically by stage of business cycle. A Job Replacement Ratio has been developed as a quick test to confirm economic expansion or contraction and to focus economic development efforts.