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

"The majority of job growth occurred in businesses that opened from 1995 to 1998 (1,616 net jobs), with 11.5 percent of firms responsible for 32.7 percent of all job creation."

In 1996, Research & Planning (R&P) found that small employers have a larger impact on the Wyoming economy than other sized businesses.¹ R&P found in 1998 that the majority of the job growth in 1998 (1,542 net jobs) specifically occurred in small businesses with "9" or fewer employees, especially the "3 to 4" employment size class (see Table 1B). With employers having expanded this quickly and in such a small size class, it is expected that future studies will show these same employers in the larger size classes (e.g., "5 to 9" employees) but still consider them small businesses.

In the June issue of Wyoming Labor Force Trends, R&P looked at hiring and turnover rates of employers by tracking individuals through Unemployment Insurance (ES-202) employer data to determine which was greater, job creation or job destruction. This month, the number of businesses with employment growth or loss is examined by industry, employment size class and age. Only those businesses open and operating at least one calendar year are utilized.

In 1998, 6,063 employers (44.1%) added more jobs than in 1997, while 5,761 employers (41.9%) decreased jobs in their businesses. This amounted to 1,861 more jobs gained than lost in the Wyoming economy (see Table 1A). Employers in the Services industry created the most jobs (451 net jobs) with 219 businesses expanding employment, thereby contributing to gross job creation.² Mining employers actually declined by 38 businesses due to downsizing, but the net change in employment was positive (321 net jobs). Some businesses reduced their workforces yet saw production increases because of enhanced productivity of the remaining workers due to technology or capital advances.

Construction; Transportation, Communications, & Public Utilities (TCPU); and Finance, Insurance, & Real Estate (FIRE) were the other three major industries that contributed to job expansion in Wyoming. Construction is tied to government spending on roads³ and interest rates⁴, with both being favorable to the industry at this time. Manufacturing and Agriculture, Forestry & Fishing were the only two major industries with job losses.

The ratio of new jobs to previous employment levels, by prior year size class and age of business, was determined to identify where expansions and contractions occurred in the Wyoming economy. The majority of job growth occurred in businesses that opened from 1995 to 1998 (1,616 net jobs, see Table 1C), with 11.5 percent of firms responsible for 32.7 percent of all job creation. Since only employers that operated businesses for at least two years were utilized for this calculation, the probability of survival is higher than for newly formed businesses.

Data & Methodology

Calculating job creation or destruction over time from the employer’s perspective, rather than using net job flows from both the individual and employer’s perspectives,⁵ is a useful economic development indicator. The analysis of job churning yields results similar to the study of job creation and destruction, but uses only Unemployment Insurance (ES-202) employer data for calculations to assess gross flows of employment. This new source of information helps reveal the business expectations for hiring and job growth potential. Businesses which change ownership are excluded from this study and will be the subject of a future article.

There are three ways to look at and calculate expansion and contraction using employer data. Two are used to compare other studies, and the third is used as a new take on an old idea. First, expansion and contraction is studied using a method similar to the state of Minnesota,⁶ because it is the only state that has researched and published results. This allows a comparison of state-to-state differences by industry and employment size class showing which types of businesses create jobs. The annual average employment for each employer is compared to the annual average of the previous year. This is the most statistically conservative method.

The second method to determine percentage of businesses and employment with job gains and losses is calculated by looking at traditional over-the-year employment gains. In this case, the employment levels of an employer in June 1998 are compared to levels in June 1997. This is done for each month, producing yearly annual averages. The results of using this method are in between the results of the other two methods.

The third and final method examines the seasonal influence of job expansions and contractions of employers. Month-to-month levels of employment are compared for each employer. This approach is similar to how Manpower⁷  questions employers in its surveys, except it tracks actual job outcomes instead of employers' expectations.

Wyoming in Comparison to Other States

The Minnesota Research office found that 44.9 percent of its employers/establishments added jobs from 1995 to 1996, while 37.5 percent lost jobs during the same time period. These estimates are higher than in Wyoming for expansion but lower for businesses losing jobs. The majority of employers expanding in Minnesota occurred in TCPU (10.3% net expansion), Manufacturing (15.3%) and Wholesale Trade (10.7%), a different industry makeup than Wyoming. Also, the bulk of job growth in Minnesota shows demand for workers at the "20" and greater employment size class, with employers of "250 to 499" employees having the largest impact on the economy.

Over-the-Year Job Creation and Destruction

In over-the-year comparisons, 30.1 percent of the businesses in Wyoming added jobs (15,597) from 1997 to 1998, while 28.2 percent decreased their employment levels (13,784). This yielded a net yearly job growth of 1,813 with 264 more employers expanding than contracting (see Table 2). This is down from the 1992 to 1993 peak of 34.0 percent adding jobs (17,367), 27.9 percent decreasing jobs (13,066) and a net yearly job growth of 4,301 with 727 more employers expanding than contracting. This is also higher than the 1,851 new firms which opened in 1997 and accounted for 7,833 of the new jobs in Wyoming.⁸ The percentage number of businesses is lower with over-the-year comparisons (30.1 and 28.2%) than with yearly average comparisons (44.1 to 41.9%) because over-the-year comparisons give a truer picture of what is happening to businesses than yearly average and seasonal calculations.

Seasonal Job Creation and Destruction

The third method of calculation looks at month-to-month changes or the seasonality of the Wyoming economy to determine job creation and destruction. When businesses open and operating at least one year were analyzed, a low of 15.0 percent of businesses grew during the winter while 26.0 percent grew in the spring (see Figure). This gives employers and job seekers the knowledge of when labor markets will tighten and loosen. During 1998, a monthly average of 18.8 percent of all businesses increased during the year compared to 18.0 percent declining. The net change in the number of jobs by businesses increasing to decreasing was negative with 48.7 jobs lost monthly in 1996 and a positive 141.8 net jobs gained monthly in 1998.

The second quarter, specifically April (1,744 businesses in 1998) and May (1,561 businesses in 1998), shows large net increases in the number of employers expanding their workforces with 23.7 and 24.6 percent of employers expanding each month, respectively. The third and fourth quarters show a significant number of employers reducing their workforces which corresponds with seasonal patterns in the total non-agriculture employment series. This is slightly lower compared to surveys like the 1998 Manpower study⁹ expecting 26.0 to 36.0 percent of local Wyoming employers to expand in the spring, and 3.0 to 10.0 percent of the employers to anticipate cuts. These estimates were much lower than what actually occurred. In December, the Manpower study expected 10.0 percent of the employers to expand and 6.0 percent to reduce the number of jobs. From the tables, these estimates are much lower than reality, possibly due to questionnaire bias. For example, many employers tend to be optimistic when asked whether or not they will increase employment levels.

The Manpower study also expected expansions in Services, Public Administration, Wholesale and Retail Trade. In contrast, this study finds only Services, Construction and TCPU industries showing expansions in 1998. One interesting note: when examining businesses that grew or declined using employment over-the-year comparisons, fewer businesses were operating in both years (see Table 2) than shown by month-to-month comparisons (see Figure). This finding indicates fewer businesses survived under the same ownership¹⁰ or survived at all. Also, the number of businesses that operated in only one year decreased in 1993 and then increased gradually showing more firms surviving. Examining the over-the-year growth and the number of businesses operating for two years shows substantially fewer (20.0%) businesses operating. This is due to businesses not surviving¹¹ or just opening during the two-year period.

Conclusion

The majority of job growth in Wyoming comes from young small businesses in the Construction, TCPU, FIRE and Mining industries; other states depend on larger businesses for growth. 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. 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.

In next year’s study, geographical or county differences will be looked at, along with comparing percent of existing businesses with job growth to new businesses. We will study the age and survival of three groups of employers: new, bought and sold, and existing businesses. Turnover and job flow data calculations for each type of employer will be made to arrive at a model to estimate employment demand in the future.

1 Carol Toups, "One-Third of Wyoming Employment Found in Small Businesses," Wyoming Labor Force Trends, January 1996.

2 Valerie A. Davis, "Who Are Wyoming’s New Hires?," Wyoming Labor Force Trends, July 1999.

3 David Bullard, "Federal Expenditures in Wyoming Revisited: Growth in 1997," Wyoming Labor Force Trends, June 1998.

4 Mike Evans, "Wyoming Construction and Real Estate Industries: Where Have We Been and Where Are We Going," Wyoming Labor Force Trends, July 1997.

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

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

7 Manpower Inc., "Employment Outlook Survey," First and Third Quarters 1998.

8 Sherry Yu, "Update: New Business Formation in Wyoming," Wyoming Labor Force Trends, January 1999.

9 Manpower Inc., "Employment Outlook Survey," from the Casper Star-Tribune.

10 Mike Evans, "Business Churning Dynamics: Businesses Bought and Sold by Industry and County in Wyoming," Wyoming Labor Force Trends, March 1998.

11 Sherry Yu, "A Study of Wyoming’s New Business Formation," Wyoming Labor Force Trends, April 1997.

Works Consulted

Baldwin, J., T. Dunne, and J. Haltiwanger. 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, 1994.

Davis, S.J. and J. Haltiwanger. "Gross Job Creation and Destruction: Microeconomics Evidence and Macroeconomics Implications." NBER Macroeconomics Annual. (1990).

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

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

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

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