Business Formation and Business Employment Dynamics in OregonNovember 23, 2022
While there are always businesses that are closing, businesses are forming and opening too. Business formations have increased recently after taking a slight pause during the onset of the pandemic recession. Applications for new businesses in Oregon ranged between about 3,000 and 3,500 in the three years prior to the pandemic. In April 2020, new business applications fell to about 2,500 and then had recovered to around 3,300 by June 2022 and have trended upward through September 2022. The share of total business applications without planned wages has also risen steadily with about four out of five business applications from those that do not have planned wages since about 2010. In September 2022, there were 700 Oregon business applications with planned wages and 3,600 without planned wages.
Total business units in Oregon climbed from 150,800 during the second quarter of 2019 to 171,300 in the second quarter of 2022, a gain of 13.6%. Private-sector payroll jobs fell by 20,700, a loss of 1.2% during the period. More businesses with fewer jobs per business seems to be the trend since the pandemic. The average number of jobs per business unit fell from 11 to 9.75 over those three years.
The U.S. Bureau of Labor Statistics’ Business Employment Dynamics (BED) data give more insight into job change by businesses who are either opening, closing, expanding, or contracting. Data are now available for the first quarter of 2022 as the pandemic’s grip was lessening across the economy and Oregon’s job market. BED statistics track changes in employment at the establishment level, revealing the dynamics underlying net changes in employment. These data include the number and rates of gross jobs gained at opening and expanding establishments, as well as the number and rates of gross jobs lost by closing and contracting establishments. Since this data is compiled from payroll jobs covered by unemployment insurance, it does not capture all establishments and workers, with the major exclusions being self-employed workers, religious organizations, most agricultural workers on small farms, all members of the Armed Forces, elected officials in most states, most employees of railroads, some domestic workers, most student workers at schools, and employees of certain nonprofit organizations.
Gross job gains and gross job losses do not include government employees, private households, and establishments with zero employment. BED measure job changes at the establishment level, providing a picture of the dynamics underlying the aggregate net employment growth statistics. They do not account for employment changes within the establishment that may, for example, keep its employment constant. The gross job gain and gross job loss statistics are particularly useful in decomposing the forces behind net changes in employment. There are four measures available from the BED data: openings, expansions, closings, and contractions.
Openings: Either establishments with positive third month employment for the first time in the current quarter, with no links to the prior quarter, or with positive third month employment in the current quarter following zero employment in the previous quarter.
Expansions: Establishments with positive employment in the third month in both the previous and current quarters, with a net increase in employment over this period.
Closings: Either establishments with positive third month employment in the previous quarter, with no positive employment reported in the current quarter, or with positive third month employment in the previous quarter followed by zero employment in the current quarter.
Contractions: Establishments with positive employment in the third month in both the previous and current quarters, with a net decrease in employment over this period.
In the early days of the pandemic, Oregon had a net employment loss of 208,900 in the second quarter of 2020. That is the difference between total gross jobs gains from expansions and openings, and total gross job losses from contractions and closures. Comparing second quarter 2020 to second quarter 2019, jobs lost by business contractions nearly tripled, going from about 82,200 to more than 238,200. Jobs lost from business closures more than doubled over that year, from about 18,100 to reach 51,600 during the second quarter of 2020. Even during the pandemic, jobs were added at opening establishments – 16,600 in the second quarter of 2020, a slight loss of 2.0% from the 16,800 jobs gained from opening establishments during the second quarter of 2019. Job gains from establishment expansions declined more over that year, from 88,200 jobs in the second quarter of 2019 to 64,500 jobs in the quarter ending June 2020.
The rebound in jobs that began in third quarter 2020 has continued through first quarter 2022. In the most recent data, Oregon had a net positive change of 30,000 private-sector jobs, with expanding and opening establishments gaining almost 125,000 jobs while closing and contracting establishments shed 95,000 jobs. During the past seven quarters, job gains have outpaced job losses in Oregon.
Looking back at the prior dozen years we can see the pandemic recession’s period of increased velocity in dynamics on both the job creation and job destruction sides. Job losses from closing and contracting establishments spiked during the first quarter of 2020, but has since returned to more typical levels seen during the prior decade.
The leisure and hospitality sector remains among the most significantly impacted by the COVID-19 pandemic. This sector still has the largest number of jobs to regain to reach its pre-pandemic level reached in February 2020. Nationally, leisure and hospitality is still 1.1 million jobs below its pre-pandemic peak as of October 2022. The trend for gross job gains and losses for the leisure and hospitality industry mirrors the overall trend, but shows the recession’s outsized impact on this industry.
The distribution of gross job losses in the leisure and hospitality sector shows that during the worst quarter of the pandemic recession, there were 71,400 jobs lost in contracting establishments and 20,700 jobs lost at closing establishments. The leisure and hospitality industry accounted for about 30% of Oregon’s private-sector job losses from contracting establishments and about 40% of Oregon’s total private-sector losses from closing establishments during first quarter 2020. Job losses due to closures are the jobs that garner the most worry. Employers have been repeatedly challenged during the pandemic as business practices shifted, temporary closures ensued, and rapid reopening meant a high level of competition for available workers. In 2022, there continues to be a higher number of job vacancies in Oregon than unemployed workers. With the lag in data availability for these business dynamics like closures, these figures continue to be of interest as we attempt to gauge the longer-term stresses of the pandemic and its effect on Oregon businesses.
Jobs continue to be added at both opening and expanding leisure and hospitality establishments, although the pace of gains has yet to match up to the many jobs the sector needs to add back to reach a full recovery from the pandemic.
As subsequent quarters of Business Employment Dynamics data become available, we will be able to look at more of the signs of continued recovery across other sectors of our economy. BED data is another tool to help understand if we are rebuilding the economy with employment from new establishments or if it is the expansion of existing establishments driving the net employment change. For more information, go to the Bureau of Labor Statistics’ Business Employment Dynamics homepage.