Using Worker Flows to Measure Firm Dynamics

Information on firm dynamics is critical to understanding economic activity, yet is fundamentally difficult to measure. In this article we introduce a new way of capturing dynamics: following clusters of workers as they move across administrative entities. We show that a worker flow approach improves linkages across firms in longitudinal business databases. The approach also provides conceptual insights into the changing structure of businesses and employer–employee relationships. Many worker–cluster flows involve changes in industry particularly movements into and out of personnel supply firms. Another finding, that a nontrivial fraction of firm entry is associated with such flows, suggests that a path for firm entry is a group of workers at an existing firm starting a new firm.