Which Types of Businesses Create Jobs for the Wyoming Economy?: 1999 Update¹
by: Mike Evans, Economist

"The majority of job growth in Wyoming came from relatively young, small businesses in the Construction, Retail Trade and Services industries."

The majority of job growth continues to occur in small businesses, but growth also started in larger firms during 1999. In 1999, 6,522 employers (45.7%) added more jobs than in 1998, while 5,670 employers (39.8 %) decreased jobs. This amounted to 5,605 more jobs gained than lost in the Wyoming economy from firms that have been in business for two years or more (see Table 1).

Data & Methodology

Firm job expansion and contraction in Wyoming are studied using a method similar to the method used in Minnesota where the employment for the year is averaged together to determine size class and job growth.²  Using a common technique allows comparison of state-to-state differences or similarities by industry and employment size class, showing which types of businesses create jobs. Using this technique, expansion and contraction are calculated by comparing the annual average employment for each employer over the previous year. This is the most statistically conservative method and avoids certain statistical and seasonal issues concerning size class.³  Wyoming exhibits a tremendous amount of job expansion in the spring and contraction in the winter due to the employment distribution and seasonal nature of the economy.

Calculation of job creation or destruction over time using the firm as the unit of analysis rather than using worker flows, where both the worker and the employer are treated as the unit of analysis,⁴ is a new way of looking at job growth and destruction. This method provides a different perspective on businesses' hiring behavior and job growth potential by looking at past firm behavior. Businesses which changed ownership during this study period are excluded from this study and will be the subject of a future article.

Results

Employers⁵ in the Services industry created the most jobs (2,800 net jobs created or 50.0% of the total net growth) with 304 net businesses expanding employment (2,232 firms expanding jobs minus 1,928 firms declining jobs), thereby contributing to gross job creation (see Table 1). The number of Wholesale Trade employers actually declined by 49 businesses due to downsizing, but the net change in employment was positive due to a small number of employers expanding (125 net jobs or 2.2% of total net growth).

Construction (17.0% of total net growth) and Retail Trade (20.3% of total net growth) are the other two major industries that contributed to job expansion for Wyoming. Construction is tied to government spending on roads⁶ and interest rates,⁷ and we are currently in a period of increased federal spending on highways and low interest rates. Retail Trade growth was tied to a favorable Christmas shopping season with increased sales.⁸

Agriculture made a comeback in 1999 from 1998, increasing by 315 net new jobs, while in 1998 it lost 14 jobs. In 1999, there were 136 more firms expanding (16.0% of total net growth) than losing jobs.

Mining continued contracting, losing 739 net jobs, with 83 net firms having decreased jobs from 1998. Some businesses may reduce their workforce yet see production increases because of the enhanced productivity of the remaining workers due to technological or capital advances.

The ratio of new jobs to previous employment levels, by prior year size class and age of the business, can identify where expansions and contractions occur in the Wyoming economy. Small businesses, firms having nine or fewer employees, continued to grow in 1999 (2,272 net jobs, see Table 2), while larger businesses, having more than 100 employees, expanded by only 45 businesses. However, these large firms had a net change of 2,127 jobs or 38.0 percent of the total net growth.

The majority of the job growth continued to occur in recently opened businesses, those opened from 1995 to 1999 (2,167 net jobs, see Table 3), although firms that were in business for ten, twenty and thirty years started to grow substantially: 978, 1,295 and 1,237 net jobs in 1999. Since only employers that operated businesses for at least two years were utilized for this calculation, the probability of survival is higher than newly formed businesses. Comparison of the number of firms open in 1998 and 1999 (14,259) with previous years (13,758 firms open in 1997 and 1998), showed the survival rate of firms increased, indicating a stronger economy in 1999.

Comparison of the number of firms expanding (6,522) to new businesses (1,851 in 1997)⁹ and jobs created showed existing businesses have a much larger impact on the economy than new firms in operation less than one year.¹⁰ 

Conclusion

The majority of job growth in Wyoming came from relatively young, small businesses in the Construction, Retail Trade and Services industries; however, larger employers contributed substantially in 1999. Expansion and contraction studies provide a valuable source of information that can measure business expectations for future growth or layoffs. How job expansions and contractions are viewed and calculated determines the quantity of results for comparison.

1 Mike Evans, "Which Types of Businesses Create Jobs for the Wyoming Economy?" Wyoming Labor Force Trends, September 1999, pp. 1-7.

2 The Dynamics of Employment Expansion and Contraction: Behind the Scenes of Job Churning, 1998, Minnesota Department of Economic Security, Research and Statistics Office.

3 Davis, Haltiwanger, and Schuh, "Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," NBER Working Paper #4492, 1993.

4 Mike Evans, "Job Turnover and Hire Rates in Wyoming, Which is Greater: Job Creation or Destruction?," Wyoming Labor Force Trends, June 1999, pp. 1-5.

5 For an explanation of businesses covered under Unemployment Insurance (UI), see Where Are the Jobs? What Do They Pay? 1998 Annual Covered Employment & Wages, Research & Planning, Wyoming Department of Employment, December 1999, Technical Appendix.

6 David Bullard, "Federal Expenditures in Wyoming Revisited: Growth in 1997," Wyoming Labor Force Trends, June 1998, pp. 1-4.

7 Mike Evans, "Wyoming Construction and Real Estate Industries: Where Have We Been and Where Are We Going?" Wyoming Labor Force Trends, July 1997, pp. 7-9.

8 Economic Analysis Division, Department of Administration and Information, 1999 Wyoming Sales, Use and Lodging Tax Revenue Report.

9 Sherry Yu, "Update: New Business Formation in Wyoming," Wyoming Labor Force Trends, January 1999, pp. 1-9.

10 In the upcoming months in Wyoming Labor Force Trends, an update of new business formations will confirm or refute this statement.

Works Consulted

Baldwin, J., Dunne, T., and Haltiwanger, J. 1994. "A Comparison of Job Creation and Job Destruction in Canada and the United States," Washington, DC: Bureau of the Census, Economic Planning and Coordination Division.

Davis, S.J. and Haltiwanger, J. 1990. “Gross Job Creation and Destruction: Microeconomics Evidence and Macroeconomics Implications,” NBER Macroeconomics Annual. Blanchard, Oliver and Stanley Fisher (eds.), Cambridge, MA. MIT PRESS.

Davis, S.J. and Haltiwanger, J. 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, 107:819-864.

Davis, S.J. and Haltiwanger, J. 1996. Job Creation and Destruction, Massachusetts Institute of Technology Press, Cambridge, MA.

McGuckin, R. and Pascoe, G. 1988. "The Longitudinal Research Database (LRD): Status and Research Possibilities," Survey of Current Business; pp. 30-37.

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