Report Briefing Panel on Measuring Business Formation Business

• Report Briefing • Panel on Measuring Business Formation, Business Dynamics, and Performance Sponsored by the Ewing Marion Kauffman Foundation and conducted by the Committee on National Statistics May 4, 2007

Co-Chairs of the Panel John Haltiwanger Lisa Lynch May 4, 2007

Charge to Panel • Catalog existing business data infrastructure • Identify gaps in measurement of business dynamics • Identify gaps in measures in research on topics including business entry and exit, business adaptation and growth and the dynamics of young and small businesses • Develop recommendations for better use of existing data sources including better data integration and for new and improved collection of business data May 4, 2007

Recent Remarks by Federal Reserve Chairman Bernanke …One leading explanation for the strong U. S. productivity growth is that labor markets in the United States tend to be more flexible and competitive, market characteristics that have allowed the United States to realize greater economic benefits from new technologies. For example, taking full advantage of new information and communication technologies may require extensive reorganization of work practices, the reassignment and retraining of workers, and ultimately some reallocation of labor among firms and industries… —August 31, 2006 May 4, 2007

Excerpt from Economic Report of the President, 2007 …New businesses provide both a ready supply of new ideas and a source of competition that forces larger businesses to innovate. Both of these factors have likely given the United States an edge in taking advantage of new opportunities made possible by IT advances. As with flexible labor markets, the ease of starting a new business helps with the level and the growth rate of productivity. Over long periods of time, starting new businesses keeps the economic environment competitive, which spurs innovation and helps push inefficient firms out of the market place… —Chapter 2, Page 61 May 4, 2007

Recommendation 11 BLS and the Census Bureau should cooperate under the auspices of the current and an enhanced Confidential Information Protection and Statistical Efficiency Act to create a reconciled, consolidated integrated business establishment list • Improve sampling efficiency • Improve data quality May 4, 2007

Recommendation 12 The quality of research based on business data produced by the statistical agencies would improve with greater interaction between outside researchers and businesses and the statistical agencies. Research that informs social and economic policy should be considered a valid reason for accessing confidential data. • Significant recent advances made on this front by Census and IRS May 4, 2007

Recommendation 13 It would be highly desirable if the business registers were available to federal agencies for the purpose of constructing sampling frames • e. g. Allow the SBA or Federal Reserve to have samples drawn from business register for samples for surveys they conduct May 4, 2007

Recommendation 15 Measures should be taken to facilitate the expansion of CIPSEA to increase the kinds of information that could be shared among the statistical agencies for the purpose of reconciling the business list and for the design of special surveys May 4, 2007

Recommendation 16 Interagency sharing agreements should extend to data on nonemployers. Data on sole proprietors and partnerships must also be included, whether they have employers or not. • Precautions taken to ensure that this increase in sharing does not get used as an argument for further restricting access May 4, 2007

Recent Remarks by Federal Reserve Chairman Bernanke …One leading explanation for the strong U. S. productivity growth is that labor markets in the United States tend to be more flexible and competitive, market characteristics that have allowed the United States to realize greater economic benefits from new technologies. For example, taking full advantage of new information and communication technologies may require extensive reorganization of work practices, the reassignment and retraining of workers, and ultimately some reallocation of labor among firms and industries… —August 31, 2006 May 4, 2007

Excerpt from Economic Report of the President, 2007 …New businesses provide both a ready supply of new ideas and a source of competition that forces larger businesses to innovate. Both of these factors have likely given the United States an edge in taking advantage of new opportunities made possible by IT advances. As with flexible labor markets, the ease of starting a new business helps with the level and the growth rate of productivity. Over long periods of time, starting new businesses keeps the economic environment competitive, which spurs innovation and helps push inefficient firms out of the market place… —Chapter 2, Page 61 May 4, 2007

Recommendation 1 Census and BLS should increase the sampling of younger business units in their business surveys. • Use business age as a stratifying variable in sample design. • Promptly capture new entrants in the business lists that serve as sample frames. May 4, 2007

Recommendation 2 BLS and Census should expand their development of statistical programs that measure business formation and dissolution, business dynamics, and job creation and destruction • Business Employment Dynamics (BED) • Statistics of U. S. Businesses (SUSB) May 4, 2007

Recommendation 3 Census and BLS should exploit their administrative-records data to produce publicrelease statistics with breakdowns of economic activity by business age. Readily available indicators of business age include: • Application date for Employer ID No. (EIN) • First period with positive revenues • First period with positive payroll May 4, 2007

Recommendation 8 Census and BLS should actively pursue opportunities to acquire micro data sets from commercial sources and from other government agencies. These data sets should be integrated into existing business-level data sets at Census and BLS. • E. g. , venture capital, small business lending, government contract awards • Use integrated data to produce new public-release statistics by source and type of financing and new tools for statistical analysis. May 4, 2007

Recommendation 14 BLS and Census should develop anonymized, public-use versions of their existing longitudinal business data sets. • Use synthetic data or other techniques that protect confidentiality of individual businesses. • Source material: – Longitudinal Database on Businesses (BLS) – Longitudinal Business Database (Census) – Integrated Longitudinal Business Database (Census) May 4, 2007

May 4, 2007

Recommendation 4 The Census Bureau should periodically add a module to the American Community Survey (or possibly the Current Population Survey) to identify nascent entrepreneurs. A method should be developed for linking this survey information with subsequent business identifiers in a longitudinal household-business data infrastructure so that transitions from nascent to active status (and vice versa) and from nonemployer to employer status (and vice versa) can be measured and studied. May 4, 2007

Recommendation 5 The Census Bureau’s SBO should be conducted on an annual basis. The survey should include both a longitudinal component and a flexible, modular design that allows survey content to change over time. In addition, the Census Bureau should explore the possibility of creating a public-use (anonymized) SBO or a restricted access version of the data file. May 4, 2007

Recommendation 6 The Census Bureau should develop a fully integrated longitudinal household-business data infrastructure from administrative data to serve as a platform for tracking business formation, for integrating household and business survey data for measuring economic activity associated with the business formation process, and for developing samples for new surveys of business dynamics. The integration should include the master household address files, the job frame from linked employer-employee administrative records, and data for firms (including those with no paid employees, but with receipts) from the Census Bureau business register. May 4, 2007

Recommendation 7 BLS and the Census Bureau should jointly develop intermittent topical modules for their business surveys. These topical modules should be designed to allow periodic measurement in the same survey and with the same business sample of variables usually collected in separate surveys and at different frequencies. May 4, 2007

Recommendation 8 The Census Bureau and BLS should explore and actively pursue opportunities to acquire microdata sets—on venture capital investment, business financing, and small business lending—from commercial sources and from other government statistical agencies. Once acquired, these data sets should be integrated with existing business-level data sources at the Census Bureau and BLS to produce new public-release statistics on business activity by source and type of financing and to provide new tools for statistical analysis by qualified researchers. May 4, 2007

Recommendation 9 The Office of Management and Budget should investigate the possibility of developing a common taxonomy, based on the extensible business reporting language (XBRL) to allow common definitions to be used in surveys and administrative sources that can be automatically extracted from accounting and other business management software. In so doing, they should work with the statistical agencies, the Internal Revenue Service (IRS), accountancy organizations, and software providers. This will help meet the goals of paperwork reduction and may have applications for similar purposes beyond the statistical system. May 4, 2007

Recommendation 10 BLS and the Census Bureau should explore the possibility of continuous, real-time integration of payroll and employment data that are maintained by third parties into their systems; this could streamline data collection and, ultimately, possibly reduce respondent burden. May 4, 2007

May 4, 2007