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How the Statistical System Can Help Create Jobs

1 February 2011 3,077 views No Comment
E.J. Reedy

E.J. Reedy is a research fellow for the Ewing Marion Kauffman Foundation, where he blogs as the Data Maven and coordinates entrepreneurship and innovation data–related initiatives such as the Kauffman Firm Survey and the foundation’s multiyear series of symposiums on data.

With unemployment rates stubbornly high and the global economy increasingly competitive, the United States needs to better understand businesses, policies to support businesses, and, ultimately, how to spur job creation.

Jobs don’t just appear or disappear; they are created (and destroyed) by businesses that are reacting to market conditions and opportunities. While our national statistical system is increasing its capacity to produce statistics on these dynamic processes, policymakers could better target job creation programs if the statistical system collected more data about how businesses finance operations and investment in innovation, especially at the regional/local level. Further, to bolster the value of data currently produced, we need to nourish active data user communities to advance the substantive scientific understanding of job creation policies and educate policymakers about the importance and utility of the data.

The Current Situation

While we postulate about factors that drive business success—access to financing, investments in innovation and research and development, etc.—many of the drivers of business success and job creation are a mystery. Most of the data produced by the national statistical offices are only used for tabular outputs describing conditions at a certain point in time. Our national statistical system is just beginning to collect and organize data to better examine business dynamics so job creation and destruction can be understood in more meaningful ways.

New data from the Census Bureau’s Business Dynamics Series and the Bureau of Labor Statistics’ Business Employment Dynamics program have begun to shed light on the complex process of business dynamics in the U.S. economy. Groups such as NORC at the University of Chicago and the Census Bureau’s Center for Economic Research are showing it is possible to maintain confidentiality while allowing researchers to have secure access to microdata. Many other statistical agencies recognize the need for creating user communities, but are at nascent starting points.

What Is Needed

While the statistical agencies have made huge advances in describing dynamics at the national level, now is the time to put meat on the bones of these descriptions and to provide increasingly local, timely information. We have little data from the statistical agencies to help examine how certain business inputs relate to outcomes such as employment generation. Tabulations about cross-sectional populations are not adequate substitutions for statistical programs that produce statistics on dynamic processes or microdata research.

While not the only topic that could be considered in a statistical system looking to better measure factors that drive job creation, small business financing certainly is among the top possibilities. Indeed, we at Kauffman have funded an eight-year longitudinal panel of new businesses (Kauffman Firm Survey) that focuses largely on the topic because we believe it is important but understudied.

Other private efforts such as the National Federation of Independent Businesses provide timely information. But private efforts must be matched by improved public efforts if we are to achieve better national and subnational coverage and to have data that can be matched with other government survey and administrative records.

How to Get There

For the next generation of research and collection on what drives economic growth and job creation, the United States needs a statistical system that recognizes the need for quality survey collection, enhanced use of administrative records, and a coordinated microdata research program.

On small business financing, a leader is needed to bring together the different agencies interested in the topic. The Small Business Administration is not well funded (and also is not a statistical agency), but it is interested in better small business finance data and has included developing better data in its strategic plan. The Federal Reserve historically has been a leader in the collection of small business finance data, but has new potential leadership bubbling up from the local level. As the Fed shifts more of its efforts to regional economic development as part of the changing role of the 12 regional banks that make up the Federal Reserve System, local teams have realized the need for better business financing data if they are to accurately track local conditions. While these regional Federal Reserve representatives don’t yet have a collective voice in driving changes coming out of Washington, they make up an important group.

The Census Bureau would be a logical lead agency to collect more meaningful financing data, but it currently lacks an internal advocate. If enhanced collection on small business finance were to come about, the survey work needs to be complemented by an effort to promote more research using microdata by integrating small business financing data into ongoing research using the Longitudinal Business Database at the Census Bureau.

Indeed, on the topic of innovation, the National Science Foundation could implement a similar complementary effort to encourage more microdata research to accompany their recent improvements in their research and development and innovation surveys.

Why Change?

As the government and other nonprofits implement more local programs to spur job creation or small business development, data are desperately needed to track local trends in business outcomes and conditions. It’s because of this that politicians tend to be more interested in supporting programs that can help provide independent, meaningful, and timely data on job creation in their regions. The statistical community should recognize this and strengthen their collections before politicians become alienated consumers of private data.

Tomorrow’s statistical system will be borne out of the changes made in the wake of today’s financial crisis. While some improvements to data collection are likely to cost money—getting data faster and/or larger samples—many others are relatively cheap and likely to save money in the long term. The changes we make or don’t make will be our legacy in better understanding economic growth and job creation.

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