Abstract abilities and skills are the best predictors of high wages in the District

District workers are handsomely paid. The median salary in the District was $64,890 in 2014 or 1.8 times the median U.S. salary. One explanation usually offered for this high pay is the presence of the federal government (see here, and here).  Not only does the government pay higher than the private sector in the District, it also supports the kinds of jobs (lobbyists, lawyers, contractors) with compensation packages they would not get anywhere else.

In this post, we show that District workers receive high salaries, not just because the federal government is here, but because District jobs (including administration, lobbying, and professional services) attract people who have skills and abilities highly rewarded anywhere.

We begin with some background: The District’s labor markets survived the great recession rather well. Between 2005 and 2014, the District added 64,880 new workers – a 10 percent increase in total employment. A one percent growth per year may seem meager, but during that period, national employment increased by 4 percent only, so the District did 2.7 times better than the nation.

But equally important is the change in the District’s occupational mix. Managers and professionals (lawyers, doctors, business and finance people, scientists, and engineers) made up 60 percent of the District’s workforce in 2014, up from 53 percent ten years earlier at the expense of sales and office jobs. While a shift towards management and professional jobs is a feature of the national economy, the pace of change is much faster in the District: Management and professional jobs increased by 3 percent in the US compared to 7 percent in the District.

image012image003The District has one of the highest concentrations of management, professional and technical jobs in the country.  Within the Washington metro area, more of these jobs are in District proper. The share of management, professional and technical jobs in the greater metro area is 47 percent–higher than other metro areas with similar workforce composition.  For example, in the Boston-Cambridge-Quincy, MA metropolitan area, the comparable share is 44 percent. In the San Francisco-San Mateo-Redwood City, CA metropolitan area, it is 41 percent.

Here is our question: Can we explain salaries by looking at what people do, without really worrying about where they work or what their job titles might be?  

To answer this question, we used detailed occupational data from the Department of Labor and borrowed from the work of two economists. The U.S. Department of Labor’s O*NET program, the nation’s primary source of occupational information, collects data on each occupation including information across 35 different skills (including things like programming, active listening, and persuasion), 52 different abilities (for example, arm-hand steadiness, stamina, or originality), 42 tasks (collecting information, staffing, inspecting equipment, structures, or material) and 57 work contexts (for example, contact with others, frequency of decision making, time pressure). O*NET scores each occupation along each of these dimensions on a scale of 1 to 5 based on peer evaluations. This gives us 186 different scores for each occupation. Acemoglu and Autor further group these different skills, abilities, and tasks into three broad areas: abstract, routine, and manual (they have further subgroups, but to keep things simple, we used these three). Their methodology yields scores for abstract, routine, and manual dimensions of each occupation.

Abstract tasks and skills include things like data analysis, creative thinking, interpreting data for others, coaching, guiding, etc. Lawyers, teachers, physicians and managers–occupations that constitute the largest source of jobs in the district–score high on the abstract dimension.  Occupations that score the highest in routine tasks (structured and repetitive work that relies on accuracy) include meter readers, bookkeepers, and cashiers—the office and retail workers, who are losing ground in our city.  Finally, manual skills include operating machinery, or work that involves hands or body, so you will find in this group lots of construction and manufacturing workers—types of occupations that are relatively rare in the District.

To be clear, the scores do not necessarily reflect the skills of persons holding those jobs. Herman Melville worked as a customs inspector, and Einstein logged hours in the patent office. A parking attendant might be very good at math puzzles and could spend his weekend designing dungeons and dragons games. But he would not use these skills in his daily job.

You can click on this link to explore scores for occupations we find in the District.

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Here are the same scores, this time grouped by broad occupation groups.  Each dot represents an occupation and the gray lines give the median score for that broad group in each area.  Management and professional occupations—the greatest source of employment in the District, score highest on abstract tasks (the median score is 5.4) and lowest on manual tasks.  Many occupations have a routine element and most occupations demand little in terms of physical labor (the exception is construction and repair jobs). You can click on the image to see the details.

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So how do these scores explain the median wages in the city? It turns out that salaries and abstract task skills are strongly correlated. A one point increase in abstract task scores increase median salary by $8,230.  This is 13 percent of median salary paid in the District. The manual task scores, on the other hand, are negatively correlated with pay.  Median salaries across different occupations decline by $3,000 per one unit increase in manual task scores, but notice from the graph that the variation in manual scores is smaller across occupations (and the relation is not as strong, you can see here).  Routine tasks scores cannot explain salary differentials at all.

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Is this strong relationship between abstract skills and abilities and wages unique to the District? It turns out, not. We find a similarly strong relationship between abstract tasks and skills and salaries in other jurisdictions. To compare, we provide the same information for Boston, San Francisco and Honolulu.  Boston and San Francisco are relatively similar to the District in their labor composition, with a large concentration in management and professional occupations.  Honolulu is different, with a larger concentration in service occupations.  In all these locations, abstract skills are the most important determinants of pay.

image029When we think of incomes, we generally think of who we work for and what we do, but we can also think in terms of skills and competencies. Within every broad occupation group, incomes generally increase as one takes on more tasks that require abstract skills such as data analysis, problem solving and interpreting information.  This matters, both at a personal level, as we choose to invest in our own or our children’s education, at for the entire city, as we consider workforce development options for many who have a hard time finding a job.

What exactly is this Data?

Occupation and wage data are from the U.S. Department of Labor’s May 2014 estimates. Description of O*NET’s occupation scoring is here. The data for the Acemoglu and Autor paper is available for download here.  Here is where they explain how they construct the task measures.

The data we used for this post can be downloaded here.

Little evidence of the gig economy in the District

Much has been written about those who work in the “gig economy” (see here, and here), and those of us who try to count them. The term itself, however, is hard to define. Some think of the gig economy as work contingent on demand. Others include an element of technology that connects workers with potential sources of income.

A recent Government Accountability Office study offers various definitions, the narrowest of which produces an estimate of 7.9 percent of the workforce in the gig sector in 2010. But this group includes temps, on-call workers, and contractors: jobs that have been around forever.  Senator Mark Warner, in his recent op-ed at the Washington Post, cites that study (although the Post inadvertently links to a different report from 2000) to conclude that one-third of the U.S. labor force could be in the gig sector, and that these gig-workers “now find themselves piecing together two, three or more on-demand work opportunities to make a living” [emphasis added]. While it is true that the broadest of the GAO definitions produces an estimate of 40 percent of the workforce gigging, there is nothing new about these work arrangements GAO includes in the broad definition: independent contractors, self-employed individuals, and even part-time workers.  These work arrangements existed long before Uber opened for business.

There are good reasons to try to get a better handle on the gig economy. In the gig sector, the types of risks we typically think of as business risk—e.g., lack of customers because of bad weather, sick workers—become the worker’s problem. To be sure, even before the gig revolution, some sectors of the economy worked just like that. Cab drivers, for instance, never had much in the way of benefits such as healthcare, a pension, paid holidays or even sick days. It is no surprise that much of the gig work is beginning in sectors where workers, such as drivers, handymen, and baby-sitters, already took large risks.

The evidence that piecemeal work is replacing traditional employment in the United States is scant.  So we wondered: how about the District?  We ran into the same definitional problems about the gig economy when looking at the District’s data, but we decided to focus on the self-employed, specifically, those who characterize themselves as “self-employed in an unincorporated business they own.” For laymen, those are the people who pick up contract work, get a 1099 from the IRS at the end of the year, and pay self-employment taxes. The Bureau of Labor Statistics and the U.S. Census differentiate between the 1099’ers and self-employed who actually own a business that receives the monies for the services rendered, and in return pays a salary to the business owner, with proper deductions for social security and Medicaid. (This Pew piece on the characteristics of the self-employed provides a much more detailed explanation of the term).

We first look at the number of District taxpayers who have paid self-employment taxes. The data show that the total number of people who pay self-employment taxes has increased in the District from 35,000 in 2006 to nearly 49,000 in 2014. This is a very steep increase (36 percent overall and nearly 4.5 percent annualized) even when compared to the relatively rapid increase in the District’s population and tax filers (tax filers grew at about 2 percent per year during the same period).  But data show that the rapid increase in the number of filers who paid self-employment taxes occurred before 2010. In fact, since 2010, the share of tax filers who pay self-employment taxes has been stable at about 14 percent.

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So why did the District see such a rapid expansion in reported self-employment? This, we suspect, has less to do with changes in the underlying economy and more to do with changes in tax policy. Beginning in 2002, the District started offering Earned Income Tax Credits, first at 10 percent of the federal credit, and by 2009, at 40 percent of the federal credit (one of the most generous such programs in the nation).  The credit targets low income families and single parents with children, and the key recipients of this benefit are those who file as head of households.

Since the policy changes began, both the number and the share of heads of households who pay self-employment taxes has increased.  In 2006, only 7 percent of filers who paid self-employment taxes were heads of households.  In 2010—one year after the benefits maxed at 40 percent of federal credit—this share doubled to 14 percent, and then reached 17 percent in 2012. During the same period, there were no significant changes in the share of singles or married filers who reported self-employment income.

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One might say that tax data is not the best measure of the gig economy because it captures all taxpayers who pay self-employment income. In the District, for instance, a government employee who teaches a class at a college, or a professor who writes a paper for a non-profit, would all receive a 1099 and pay self-employment taxes. So the data are noisy, mixing moonlighters with the gig-workers.

So let’s turn to the American Community Survey, which inquires about the employment status of workers. Here we present data on District residents who characterize themselves as self-employed. And, surprisingly enough, we see a decline, both in levels and in shares.  In 2014, only 13,100 residents—2.4 percent of District residents older than 16—claimed to be mainly self-employed, down from the post-recession peak of nearly 18,000 self-employed residents (or 3.4 percent of those over the age of 16).  Self-employed persons increased slightly in the District during the recession, but since 2012—the time when resident employment really began to increase—self-employment has gone down.

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In 2014, the self-employed in the District made up about 5 percent of total resident employment.  This figure has been relatively stable, except for 2012. Self-employment income has likewise been rather stable at 3 percent of personal income. District residents who are self-employed routinely generate about 70 percent of their income from their self-employment work.

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Incidentally, the District’s self-employed residents—just like its employed residents—are better educated than those elsewhere in the United States. Nearly 60 percent of District’s self-employed have a graduate or a professional degree (compared to only 13 percent across the United States), and fewer than one in five completed schooling only up to high school (compared to 36 percent in the country as a whole).

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Is it possible that the data are not capturing the gig economy? We can think of two reasons—one relatively unique to the District, and the other more general.

  1. It is possible that the District’s gig workers—the Uber drivers, the Amazon flex folks, the Taskrabbits—are not District residents, just like the many District workers who receive minimum wage do not live in the District.
  2. It is possible that some workers do not fully report their income because they do not realize that they must report earnings from Etsy, Sittercity, or airbnb.

It matters to us to measure the gig economy correctly because we need to be able to track the changes in the District’s economy and understand how work activities connect to incomes. We plan to dig a bit deeper, looking at who might be the gig workers in the District and what types of jobs they hold.

What exactly is this data? 

Data on the number of people paying self-employment taxes in the District by tax filer type is from the IRS (2013 data set is now public). Data on class of worker are from various years of ACS. DC data on self-employment has error terms of +/- 0.5 percent to +/- 0.7 percent depending on the year (or about 2,000 workers).

For more than three years now, District’s resident employment has grown faster than the jobs in the city

There are two ways to count jobs when it comes to the District of Columbia:  the number of jobs District residents hold in the city or elsewhere or the number of jobs in the city whether District residents or commuters hold these jobs.

The U.S. Bureau of Labor Statistics counts both: in the 12-month period that ended June, 354,055 District residents held jobs (on average) and there were 759,667 jobs located in the District. It is not surprising that there are far fewer employed D.C. residents than jobs: as the central city of a large metropolitan area, the District holds almost a quarter of the region’s jobs but only about ten percent of its population. Indeed, there are more jobs located in D.C. than the city’s entire population. This makes it particularly noteworthy that over the past three and a half years, resident employment in D.C. has been increasing much more rapidly than the city’s job base.

From December 2011 to June 2015, resident employment not only increased by a greater percentage (12.3 percentage v 4.6 percentage) than D.C.’s job base, but by more in absolute numbers—38,900 more resident jobs versus 33,500 more jobs located in DC.image020

In the years leading up to December 2011, resident employment, and the job base grew at about the same rate, even allowing for the downturns in the recession. Thus, from June 2005 to December 2011 the job base grew 7 percent and resident employment 7.9 percent (representing average annual growth of 1.0 percent and 1.2 percent, respectively). Resident employment then began to grow faster. In December 2011, for every 1000 jobs located in the District, we had 434 employed residents (in the city or elsewhere); by June 2015, number of employed residents for 1000 jobs located in the city had risen to 465. This number did not grow because there were fewer jobs in the District. On the contrary, jobs in the District have been growing faster than before at 1.4 percent. However, resident employment has been growing much faster at 3.8 percent.

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What accounts for this?

One factor that has allowed the District’s resident employment grow faster than the city’s job base over the past three and a half years is demographics. Not only did the population grow faster in the recent period (2.0 percent annual rate versus the earlier 1.4 percent), but also more of these newcomers are willing to work, and are able to find jobs .

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But three other factors that could be at play. First, it could be that the newcomers to the city are taking jobs that are vacated by commuters who have moved or retired. We have showed earlier that the top reason why people move to the District is jobs. If these newcomers are taking jobs vacated by turnover (retirement or any other reason) they will increase resident employment but not the total number of jobs in the District.

Second, newcomers might choose to locate in the city even when they hold jobs in the suburbs. About 27 percent of D.C.’s employed residents were reverse commuters  at the time of the 2010 Census, and more of this may be occurring. Thus, the net increase in jobs located in DC need not define how much resident employment can grow.

There is a third, and rather underexplored, reason: self-employment. For example, a District resident who is working as an Uber driver would be reported as employed in a household survey. But the Bureau of Labor Statistics, which does not collect data from self-employed persons (they survey employers only), would miss this person in its counting of jobs located in the District.

Is there is a limit to how long resident employment can continue to grow so much faster than jobs located in the city? There is no clear answer. Over the past 30 years, however, the ratio of resident employment to wage and salary jobs located in the District has never been higher than 47.8 percent (in 1985, a time when DC had 17 percent of the region’s population, 33.6 percent of the region’s jobs, and had more people living in the city than working in it). At 46.5 percent we are not far away from this number, but suburbs were less important back then, both in how many workers they could send into the city, but also in terms of how many jobs they can give back to us.

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What exactly is this data?  

Each month the U.S. Bureau of Labor Statistics conducts two economic surveys that provide insight into the dynamics of D.C.’s economy. The first, a survey of employers of wage and salary jobs, measures the number of people working in DC regardless of where they live. The second, a household survey of residents, measures labor force characteristics including the number of DC residents who are employed regardless of the jurisdiction in which their job is located.

District’s retail sector employs many more workers, but pays less

District’s retail industry is relatively small: it accounts for just under 3 percent of all employment in the District compared to about 9 percent in the Metro area and 11 percent in the nation. But this sector is changing rapidly in what it sells, how it sells it, and whom it hires to sell.

Retail establishments in the District are employing more people than they ever did before. In March of this year, District retailers employed 22,500 workers—a third more than they did in 1998. Most of this growth, however, is recent. Between 1998 and 2009, the retail sector employment growth was tepid and lagged behind overall employment growth in the city. This changed after 2010 following the rapid population growth. As large retail stores, supermarkets, and wholesale shopping clubs like Costco began moving into the city, the retail sector added 4,000 new employees. This represents a growth of over 23 percent between 2010 and 2013, four times faster than the rate at which overall District employment grew during this period.

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Retail sector today is also more consolidated. Despite the growth in total employment, we have fewer retail establishments: 1,700 in 2013 compared to over 2,000 in 1998 and an average retail establishment now employs nearly 12 workers compared to about eight in 1998. The mom-and-pop stores with fewer than five employees are still the majority of retail establishments in the District (52 percent both in 1998 and 2013), but they are now down by about 15 percent in numbers since 1998. One quarter of establishments with five to nine employers are gone: the number of such stores declined from 488 in 1998 to 355 in 2013. During the same period, the number of establishments that hired 20 or more employees increased from 183 to 211 (but with fluctuations suggesting large turnover even among these establishments) and these mid- to large-sized stores are now 20 percent of all retail establishments, compared to 17 percent in 1998.

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How about sales? Annual data on sales are not publicly available, but the quinquennial Economic Census allows us to look at the 1997 to 2012 period. This data show that retail establishments sold $4.4 billion worth of goods in 2012, up 13 percent since 1997 after adjusting for inflation. Almost all of this growth happened since 2002, especially between 2002 and 2007. District’s retail landscape also changed: sales shifted from general merchandise and big-ticket items such as building materials to food and drinks, personal items and clothing, and furniture and home decorating items. For example, in 1998, the District had about 30 general merchandise stores (including four department stores) which collectively accounted for 6 percent or retails sales and hired 1,400 (part time or full time) employees. In 2012, we had so few of such stores that the Census did not disclose their data. We lost 20 establishments that sold old or new cars or vehicle parts. These stores used to account for five percent of all sales volume, but now are of little significance. We lost 30 stores that sell books or other print materials, half the hobby stores (left with ten), and over a third of our gas stations. On the up side, we had 22 more grocery stores in 2012 compared to 1998 (and have added more since) and pet stores are up from 3 to 10. Pharmacies, drug stores, perfumeries, and beauty stores now account for one fifth of the retail sales compared to one-tenth in 1998. We have more places we could shop for athletic shoes or yoga clothes and the sales volume of these stores increased by over 30 percent.

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Despite the growth in the retail sector sales and employment, total payroll at retail establishments remained stagnant and earnings per employee, after adjusting for inflation, do not appear to have increased. In 1997, a retail worker in the District took home what would have been the equivalent of $25,642 today. In 2012, earnings were up by only about $1,000 compared to 1998, but down from earnings from 2007, which stood at $28,913.

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Why are the wages in the District’s retail sector going down? There could be multiple reasons for this. May be it is a reflection of what is going on in the entire economy: wages remained stagnant in all industries following the Great Recession, and perhaps retail was not immune to this trend. Data on wages earned in retail in the nation and the District shed some light: In 2012, the median hourly wage of retail workers across the nation, measured in today’s dollars, was $12.43, down almost 75 cents (or six percent) from five years earlier. Median hourly wages fell in the District too, but by even more: In 2013, median hourly wages were down to $14 from $16.4 in 2007 (in today’s dollars), or by about 15 percent. This suggests that additional factors might be depressing employee earnings in the District’s retail sector.

Are stores moving to part-time workers to reduce costs? We could find no evidence to support this. According to data from the American Communities Survey, the share of retail workers who work full-time has been stable, at 83 to 84 percent through the Great Recession and after.image010

Finally, it is possible that retail is paying less because people who work retail in the District are younger, less experienced, or less qualified in some other way. Data from American Communities Survey in the District reveals some interesting trends.  For example, in 2013, the average retail worker in the District was about 37 years old (not that different from the national average). That is three years younger than the average age in 2007, but it is hard to image that an additional three years of experience after mid-thirties would have such a big impact on wages.

As a side note: nearly half of District’s retail workers do not live in the District. In 2013, about 47 percent of retail workers in the District were District residents. 38 percent commuted from Maryland and 15 percent from Virginia. Incidentally, DC residents who work in retail are younger than their commuter colleagues at the age of 34 compared to 37 for those coming from MD and 44 for Virginians who work retail in the city. These shares and differences in ages are comparable to what we had seen in 2007.

Most retail workers are paid under $15 per hour–the focal point of the minimum wage debate in the nation and the District.  This makes us wonder: who earns low wages in the District and where do they live? What are some of their characteristics (age, work habits, educational attainment)? We are digging deeper into these questions and will post our findings soon.

What exactly is this data?

Employment numbers are from Bureau of Labor Statistics, Regional and State Employment and Unemployment (Monthly). The number of establishments refer to a store in a single location–that is stores that belong to a chain each count as a separate establishment.  This data come from Census Bureau’s annual Country Business Patterns. Gross receipts and payroll data come from the Economic Census,which recently released the 2012 Census data for the District of Columbia. The data on the full-time and part-time status of the retail workers in the District, as well as the age and residence of these workers come from the American Communities Survey’s 1-year PUMS data for the District, Maryland, and Virginia for the years 2013 and 2007.

 

DC ’s post-recession surge in private sector employment is showing signs of slowing down

According to the US Bureau of Labor Statistics, the District of Columbia’s private sector employed 526,533 wage and salaried workers in June 2015 (averaged over three months). This June level was 7,267 (1.4%) above that of the prior year, a positive indicator of continued growth in the District’s economy.

The June employment level may also be a sign that the rapid increase in D.C.’s private sector employment that has occurred since the end of the US recession is slowing down. June was the second-slowest year-over-year increase since January 2011 (the other was 6,500 in September 2014). DC’s private sector job growth in June was about at the level that occurred before the recession’s onset, and was slightly under the average annual growth for the past decade (7,707).

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Weaknesses in DC’s private sector are not economy-wide. Indeed, four of the District’s major sectors, ones that account for over half of all private sector jobs (professional services, business services, health, and organizations), added 9,067 jobs from June 2014 to June 2015, more than twice as much as in the previous year. The weakness came primarily from six sectors that together account for a little more than one-third of all private jobs: education, food services, accommodations, retail, information, and finance. Those sectors grew by about 6,600 from 2013 to 2014, but they fell by 1,900 in 2015.image004

What exactly is this data? The data is from the Bureau of Labor Statistics’ monthly data release on employment by industry area. All numbers are three-month moving averages of seasonally unadjusted data. This means the numbers for June of 2015 is the average of the monthly employment figures for April, May, and June.

Residents move into the city for jobs, move out for housing

The District added about 90,000 net new residents between 2000 and 2014, but the population churn has been great. Current Population Survey data show that more than half a million people report moving to the District from some other state or jurisdiction during that period—this is on average 8 percent of the city’s resident population every year. Residents also move within the city frequently: In 2014, for example, nearly 60,000 residents moved houses within the city—this is approximately 9 percent of District’s resident population.

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Jobs—or the prospect of one—is the top reason why the District receives new residents from other states. Between 2000 and 2014, the District received nearly 165,000 new residents because either they got a job in the District or their job was relocated in the District. Another 55,000 moved here to attend college, or they had just completed college, and found the District to be an attractive job market. Not all of these newcomers stayed, but it is interesting to see that over 42 percent of District residents who had moved to the city sometime in the previous 12-month period did so for their careers. Convenience of living in the city follows jobs, with another 10 percent of District residents suggesting that they moved into the city for an easier commute.

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Why do people move out? It is housing. The top two reasons people report moving out the District in the last fifteen years have to do with wanting better housing, seeking cheaper housing, or wanting to own a house, for example, and these reasons account for 36 percent of the moves out of the District whereas they account for only 12 percent of the moves into the District. Jobs however, account for 12 percent of the people moving out compared to 32 percent moving in.

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Incidentally, suburbs do a better job in attracting District residents than the other way around. Between 2000 and 2011, the District sent 391,000 of its residents to Maryland or Virginia (42 percent of those who left the city), but received only 191,000 new residents from these two states (30 percent of the residents who moved into the city). Looking at the reasons why people move to the suburbs, housing still plays a role, but the top reason is to establish a household. It appears from the data that those who share housing in the District with roommates are most likely to move out to the suburbs when they want a place of their own.

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What exactly is this data?  Data on move rates  are extracts from the Current Population Survey data maintained by Miriam King, Steven Ruggles, J. Trent Alexander, Sarah Flood, Katie Genadek, Matthew B. Schroeder, Brandon Trampe, and Rebecca Vick. Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database]. Minneapolis: University of Minnesota, 2010. The sample for the District is small–therefore the post looks at a combined 15 year period.

Note: an earlier version of this post was published before the draft was completed.

Business Survival and Job Churn in the District

In March of 2014, the District had nearly 3,700 businesses that began hiring employees for the first time in the previous 12 months. This is the highest number of such establishments since 2001, according to Bureau of Labor Statistics data, which track business births (and deaths) in the District. These new businesses collectively added 17,000 new jobs in the same year—that is 3.7 percent of all jobs in the District.

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On the down side, 2,661 businesses that hired employees in the year before stopped hiring—the businesses are either dying or moving elsewhere. This number is better (lower) than what we saw last year, but still pretty close to its five-year average. The closing businesses took away with them 13,193 jobs—this is about a third of all jobs lost in the District during the same period. In fact, new and closing businesses account for a third (and declining share) of the job churn. For a net increase of 9,730 private-sector jobs during the year, the District’s private sector added 55,342 new positions, nearly 37,800 coming from establishments that are expanding – or have a higher number of employees in March of 2014 compared to the March of 2013.

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The data suggest that over that single year, only one out of six jobs opened were net additions, the remainder made up for jobs that were lost somewhere else in the District. That is, 5 out of 6 positions or 82 percent of all job openings were just compensating for existing jobs. That is our churn rate.

The churn rate turns out to be an interesting figure. First, to go through the mechanics of it, the higher the churn rate, the lower the net number of job increases. For example, when the city adds no new jobs, the churn rate is 100 percent. When the churn rate goes above 100 percent, it tells us that the city is losing jobs—like a game of musical chairs, when all opened positions are filled,  some people who just lost their jobs still remain standing. New and expanding establishments continue adding jobs, but they are not doing it as fast as the rate at which contracting and closing businesses are removing jobs from the District. We see such rates during the last two recessions (shaded gray in the graph below)—we also see that the District weathered both these recessions better than the nation in general. We lost net jobs, but not at such a high rate as the entire nation.  In the nation, for ten jobs lost, only four new ones opened in the same year, and six were lost. We generally talk about the federal government expansion as the reason why the District’s total employment did not suffer very badly, but the churn data from the private sector shows us that the private establishments in the city  handled the recession much better than the private establishments in the U.S. in general.

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So, how likely are the new businesses to survive in the District? It turns out that the odds of survival is lower in our city compared to the nation in general. In March of 2014, the District had 2,899 new businesses. This is the highest number of new establishments for a year since 2001, according to BLS data. These new businesses accounted for about 12 percent of all business establishments in the District. On the other side of the age spectrum were business that had been established before 1993: one-fifth of all private sector business establishments in the District first began operations 21 years ago!image009

If previous trends hold true, the District will lose one quarter of these 2,899 new businesses by March of 2015. In fact, in about ten years, only 762 businesses established today will remain intact. The odds of survival for private sector firms is much lower in the District compared to the nation in general. The first year survival rate (counting from 2014 backwards) is 76 percent in the District compared to 79 percent in the U.S. 48 percent of today’s new firms would still be standing in the District after their first five years of operation while the comparable metric for the US is 58 percent.

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What exactly is this data? The data are from the Business Employment Dynamics data compiled by the Bureau of Labor Statistics. New Businesses are businesses who had no employment in the previous quarter. Expanding establishments have positive employment in the March of every year with a net increase in employment over the year. Contracting establishments have positive employment in the March of every year, with a net decrease in employment over the year.