© Copyright 2000 by the Wyoming Department of Employment, Research & Planning

Employer Success:
Resiliency and Strategies of Industrial Adaptation in Wyoming

by: Craig R. Henderson, One Stop Program Supervisor
data compiled by: Tony Glover, Senior Analyst

"Many Wyoming employers demonstrated a three-year survival rate approximately 7.0 percent higher than firms whose diversification strategies did not reflect an actual shift in industrial classification."

I ndividuals and firms constantly adapt to change. Parents, teachers and social workers often yearn for knowledge of what makes one child or client more resilient than another when faced with uncertainty. Insight into this question can help to minimize the potentially negative effects of change, if not strengthen the individual's capacity to adapt creatively to new situations. For similar reasons, employers and economic developers want to know how businesses might diversify their products to redirect or regain focus. Some new businesses may adapt to change by exploiting new market niches or specializing.1 Even failed businesses can reform themselves through their past experiences. By learning to adjust to changes in the Wyoming market place, businesses may survive longer, expand and prosper.

Using Unemployment Insurance (UI) employer data, this article demonstrates some ways Wyoming employers have adjusted to changing market conditions or other forces by shifting their primary industrial focus. As a consequence, they have increased the probability of economic survival. By making seasonal, temporary or long-term adjustments in the goods or services their firms produce, many Wyoming employers demonstrated a three-year survival rate approximately 7.0 percent higher than firms whose diversification strategies did not reflect an actual shift in industrial classification.

Contrasting Survival Strategies of Employers and Employees

As a way of thinking about industrial shifts by employers, contrast this employer "survival" strategy with the behaviors of Wyoming-attached employees. In prior Wyoming Labor Force Trends features, Research & Planning (R&P) applied a useful classification system for describing the labor supply's level of attachment to Wyoming.2 We have described how workers' strategies often include job changing, holding multiple jobs or working seasonal jobs in order to stay employed.3 These Wyoming-attached workers may have acquired transferable skills in order to move between different employers. Just as employees may choose to change jobs, some employers may shift among industries. Employer shifts to a different industry are measured through annual surveys. If an employer changes his or her main type of business activity and reports it, the firm is reclassified to a different industry. Some code changes occur in response to revisions to the Standard Industrial Classification Manual rather than a change in product supply or customer demand. Other times, a firm makes a conscious or unconscious choice to serve a new kind of customer.

Employers registering their businesses often report ties to several industries which together account for their total revenue [i.e., a retail business that sells fuel (40% of revenue), groceries (25%) and operates a restaurant (35%) would be classified as a gas station]. Experiencing a change in its revenue distribution, the business might subsequently be classified as a convenience store or a restaurant. This approach to business mirrors the experiences of multiple job holders who require several sources of income in order to sustain themselves or increase their wealth. Other employers alternate annually between business activities (i.e., lawn care and snow removal) just as employees might pick up one or two seasonal jobs (i.e., a public school social studies teacher might work as a historical site interpreter during summer months).

Not only can personal strategies parallel employer strategies but they may have significant impact on each other. National research has shown a link between employee turnover and business survival. A study by researchers of The American University and the University of Baltimore found that in "consider[ing] the consequences to the firm of such turnover, . . . high turnover firms are less likely to survive."4 Last June, Trends reported that Wyoming had a large volume of turnover relative to the level of employment (i.e., 12.1% for Retail Trade and 8.7% for Services in 1997), especially among lower paying industries.5 More studies are needed to establish how and when workforce instability threatens business survival or inversely what business practices might result in workforce instability.6 While our analysis acknowledges alternative explanations for business survival, it illustrates how industrial sector change may be one important factor in realizing business survival and success.

Industrial Shifts by Employers

When employers first register their firms for UI coverage, the Department of Employment assigns them an industrial code reflecting the firm's main business activity. If an automotive repair shop also operates a towing service, the employer is classified by the industrial activity which generates the greater revenue. Approximately every three years, employers review their industrial classifications through refiling.7 To study the adaptation of employers, we identified the shifts in Standard Industrial Code (SIC) classifications of all private-sector, UI covered employers in Wyoming for an eight-year period.8 We chose to focus on firm survival without regard to a change in firm ownership, though a prior R&P study of new business formation also tracked business survival rates and limited the analysis to a study of continuously owned businesses.9 Our broader approach to calculating business survival, then, focuses on the firm's continuous role as an employer. We calculated a three-year survival rate by tracking the presence of a firm in the UI database each quarter for three years following each industrial code registration or change from 1989 through 1994. Because our analysis required a full three years following a firm's industrial shift and our data set extended only through 1997, we did not calculate survival rates for firms that registered or changed industries after 1995.

Patterns of Industrial Adaptation

Our analysis identified 2,435 firms that switched their industrial classifications at least once during the eight-year reference period. Table 1 illustrates the frequency of the 49 most common classification changes made by employers. Each pattern of industrial shifting included in the Table represented the behavior of five or more Wyoming firms during the eight-year period. Most often, both the old and new classifications fell within the same major industry (i.e., Retail Trade, Services or Mining). To help illustrate what this means, the SIC system consists of ten major industrial divisions. Each of these ten major industries are categorized in a hierarchy of related two- to four-digit codes. For example:

Major Industry -- Manufacturing
20 Food and Kindred Products
202 -- Dairy products
2021 ---- Creamery Butter
2022 ---- Cheese
2026 ---- Fluid Milk
205 -- Bakery Products
2051 ---- Bread
2052 ---- Cookies and Crackers

Shifts most commonly occurred between related industrial categories at or below the two-digit SIC Code level (i.e., a shift from 2051 Bread Manufacturing to 2052 Cookies and Crackers Manufacturing). To take another example, in order to reduce labor costs or meet an unmet market demand a firm categorized within Retail Trade as a caterer (SIC 5812) might shift its primary classification to catalog and mail-order houses (SIC 5961), selling meats and cheeses without a storefront. In 16 of the 49 most common patterns of industrial shifting, however, the new SIC classification fell outside the major industrial division of the prior classification (i.e., a shift from Wholesale Trade to Retail Trade; Agriculture to Construction). In Table 1, which displays the full 4-digit SIC detail, shifts between major industries are highlighted in bold.

The shift from Drinking Places (SIC 5813) to Eating [and drinking] Places (SIC 5812) ranked as the most frequent pattern of industrial classification change (23 firms). The classification, eating and drinking places, showed a recurring capacity to pair itself with other industrial classifications: Hotels and Motels (SIC 7011); Liquor Stores (SIC 5921); and Gasoline Service Stations (SIC 5541). These familiar industrial pairings may reflect an ever-increasing market demand for customer service and convenience.

Industrial shifting occurs in both the service-producing and goods-producing sectors of the economy. Table 1 shows that a combined total of 30 firms commonly shifted their primary industrial focus to Oil and Gas Field Services, NEC10 (SIC 1389). These firms shifted from the following five industries: Drilling Oil and Gas Wells (SIC 1381); Crude Petroleum and Natural Gas (SIC 1311); Industrial Machinery and Equipment (SIC 5084); Equipment Rental and Leasing, NEC (SIC 7359); and Heavy Construction, NEC (SIC 1629). Interestingly, this shift toward Oil and Gas Field Services, NEC replaced the 22 firms that moved away from this classification to Crude Petroleum and Natural Gas (SIC 1311), Heavy Construction, NEC (SIC 1629) and Local Trucking Without Storage (SIC 4212). This point may illustrate the dynamic competition for limited market demand for products and services by firms, a competition that transforms the nature of many businesses in the process. Alternatively, these coding changes may have involved noncompeting firms representing different regions of the state.

In contrast to these common industrial shifts, some employers opted to diversify or refocus their businesses in less expected ways. Not listed in Table 1 but among the 1,698 industrial shift combinations identified by our 1989-1997 data, firms classified as SIC 5812 Eating [and drinking] Places less commonly shifted to Engineering Services (SIC 8711), Furniture Stores (SIC 5712) and Livestock Services, Except Veterinary (SIC 0751). However dissimilar or unlikely these industry shifts seem at first glance, we need to consider that these industrial shifts probably reflect the diverse skills or interests of the small business owners themselves, regardless of whether the ownership changed at the time the shift occurred. After all, an entrepreneur might open a coffee bar in a store that sells hand-crafted rocking chairs in order to attract more customers. Depending on the season and economic circumstances, rocking chairs or coffee sales may bring in a greater share of the firm's revenue and provide the majority of employment for workers.

Table 2 shows the distribution of industrial shifters and non shifters among major industries. An overwhelming majority of Wyoming firms (26,971) did not shift between industrial designations. However, between 1989-1997 industry shifting among 2,435 firms accounted for limited gains in the number of firms distributed among all but three major industries. Most firms who shifted between major industries left Retail Trade, Services or Wholesale Trade. Transportation, Communications, & Public Utilities (TCPU) gained the most, a net of 38 firms, over the period.

Comparing Survival Rates for Industry-Shifting and Non Shifting Firms

To compare the rate of survival of industry shifting firms to non shifting firms, we measured the three-year survival rate of all employers who reported with UI for any quarter between the first quarter of 1989 and the fourth quarter of 1994. Again, industry shifting firms were those that changed their initial industrial designation through the refiling process during this five-year period. The duration of firms' appearance among quarterly reports of UI during the period of 1989-1997 represented their continuing "survival" as Wyoming employers. Figure 1 shows those firms that did not shift industries had an average survival rate of 96.6 percent after one quarter of business operation which fell to 76.0 percent after three years. In other words, about three-fourths of Wyoming businesses that maintained their initial industry as their primary industry survived three years. Employers who changed industrial designations between 1989-1994 had a higher survival rate. Of industry shifting firms, 98.6 percent survived the quarter after they changed their primary industrial designation and 83.8 percent were still in business three years later. Figure 2 plots the difference between the two groups, showing that industry shifting firms gradually gained a survival advantage over non shifting firms during the eight quarters following refiling. Employers from different size classes had the same survival rates. After two years, the survival rate leveled off having achieved more than a 7.0 percent gain.

Looking for other factors to explain industrial shifting, the researchers did not find among the data a relationship between size of business and industrial shifting. Given that one-third of the most common shifts involve changes between major industries (see Table 2 for a list of the ten major industries), it appears likely that a proportion of the firms that shifted did so as an adaptive strategy, whether planned or by default.


The central finding of this analysis demonstrates that some employers, particularly those in the Services and Trade industries, stayed in business longer not simply by diversifying their product lines but rather by embracing (to the extent it was formalized) a new industrial focus. Regardless of how closely related the new industrial interest was to the former interest, the emphasis on different products or services accounted for a majority of the employer's revenue, thereby replacing the employer's primary industrial designation.

Having identified that industrial change may benefit some employers, we need to make the point that changing industrial classification does not necessarily require a business to transform its public image, largely a function of the business's name and reputation. For example, absent a sign post change or significant building renovation, the public will generally view a motel that shifts its primary industrial classification to coin-operated laundry facilities (based on revenue) as a motel. The prevalence with which firms that shift industries also make changes in their corporate name could be the subject of a future study.

This analysis does not offer a definitive snapshot of employer resiliency. The components of business survival are too numerous and complex to take up in this short report. Faced with market change, though, industrial shifting offers employers another survival strategy that should not be feared and might provide a substantial benefit. More detailed analysis of firm behavior using industrial classification systems--additionally, employee adaptive behaviors and career paths using occupational classifications--have the potential to identify winning strategic models for employer (and individual) success. Patterns of industrial shifting or occupational pairings may provide economic developers, career counselors, employers and employees a better understanding of how to weather changing economic winds and realize success.

1 Xiaohong (Sherry) Yu, "Update: New Business Formation in Wyoming," Wyoming Labor Force Trends, January 1999.

2 Brett Judd, "The Wyoming Wage Record Classification System," Wyoming Labor Force Trends, March 1998.

3 Krista R. Shinkle, "Wyoming-Attached Workers: Living and Working in Wyoming," Wyoming Labor Force Trends, April 1999.

4 Julia I. Lane, Alan G. Isaac, and David W. Stevens, "Firm Heterogeneity and Worker Turnover," Journal of Economic Literature, February 1996, [Abstract].

5 Mike Evans, "Job Turnover and Hire Rates in Wyoming," Wyoming Labor Force Trends, June 1999.

6 Tony Glover and Richard Peters, "Instability Index as a Measure of Labor Market Activity," Wyoming Labor Force Trends, March 2000.

7 Refiling: each year Research & Planning randomly surveys one-third of all firms. Employers are asked whether or not their primary business function has changed. If it has, they are coded into their new industrial classification.

8 More than half of the 2,435 industrial shifts recorded for the period 1989-1997 occurred in three years, 1990-1992. The concentrated reporting of industrial change during that period reflects a combination of factors. First, the 1987 revised edition of the Standard Industrial Classification Manual was implemented, reclassifying a significant number of industries. Secondly, during this period the Department of Employment initiated new automated systems for conducting employer refiling, boosting responses. Thirdly, the refiling process moved from surveying one-third of the ten major industrial divisions each year (i.e., Mining, Construction and Services one year; Government, Agriculture and Manufacturing the next year) to surveying annually one-third of all Wyoming employers (representing all major industries).

9 Xiaohong (Sherry) Yu, "Update: New Business Formation in Wyoming," Wyoming Labor Force Trends, January 1999.

10 NEC = Not Elsewhere Classified within Standard Industrial Classification Manual. Full citation: Executive Office of the President. Office of Management and Budget. Standard Industrial Classification Manual, 1987.

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