Southern discomfort | Data reveal York County business startups are failing to create jobs
Every year in York County, existing establishments close their doors while new ones take their place. In the process, employees must make the transition from their old employer to a new employer. Some end up working within the same industry or county, while others have to retrain and/or relocate.
Understanding this dynamic process related to the opening and closing of businesses, hereafter “births and deaths,” is vital to ensure public policy aids rather than hinders job creation. Using the National Establishment Time-Series database — a collaboration between Dun & Bradstreet and California consulting firm Walls & Associates — The Maine Heritage Policy Center finds that establishment births are the most vital factor in the economy’s ability to create new jobs.
The big picture
Between 1993 and 2007, York County establishments on average created 3,379 jobs from new startups while losing 3,564 jobs from closures, leaving an annual job deficit of 184. Over the entire 15-year time period examined in this study, closures have eliminated 2,761 jobs. This negative job creation is worrisome.
More disturbing, the year-to-year fluctuations in overall employment are driven by the net job creation from births and deaths. In fact, in York County, the two are 70% positively correlated, meaning they move strongly together in the same direction. Put simply, when jobs are gained from new establishments, overall employment gets a strong boost, and vice versa.
However, net job creation from births and deaths is still vague — is it more births or fewer deaths that is responsible for more jobs? Surprisingly, deaths are more stable than births, with an average fluctuation of about 1,459 jobs compared to the overall average of 3,564 jobs destroyed over the period. Births, on the other hand, show more volatility, with an average fluctuation of about 2,245 jobs compared to the average of 3,379 jobs created.
As a result, new establishment births are a decisive factor in explaining the year-to-year change in York County’s employment level. For example, much of the job loss due to births and deaths has occurred since 2002. Since that time, job creation from births has significantly downshifted. Between 2002 and 2007, births accounted for an average of only 2,441 new jobs per year in York County. Between 1993 and 2001, births accounted for an average 4,005 new jobs per year.
Drilling down
A look at the industry composition of York County’s economy sheds some light on this decline in births. Overall, the top five industries by employment, on an average annual basis, between 1993 and 2007 were: eating and drinking establishments (6,058 jobs); ship and boat building and repair (5,546 jobs); elementary and secondary schools (5,412 jobs); grocery stores (2,695 jobs); and hotels and motels (2,074 jobs).
However, those five industries did not create the most jobs from establishment births during those years. The top five in that category are: passenger transportation arrangement (797 jobs); public order and safety (696 jobs); miscellaneous business services (493 jobs); broadwoven fabric mills, manmade (370 jobs); and the U.S. Postal Service (297 jobs).
In fact, two of the top industries by employment are at the very bottom of that list, with more jobs lost from deaths than jobs created by births: elementary and secondary schools (lost 521 jobs) and eating and drinking establishments (lost 549 jobs). The lost jobs in elementary and secondary schools may be due to consolidation, but it is a mystery as to why eating and drinking businesses are not showing more dynamism in one of Maine’s tourist hotspots.
Clearly, policymakers at both the state and local level will have to get to the bottom of this lack of new establishment births if the York County economy is to get back into the business of sustainable job growth. In fact, even adding in all the jobs created from expansions and in-migration yields a dismal gain of only 1,079 jobs from 1993 to 2007.
More troubling, one industry that deserves more attention — eating and drinking establishments — is one of the top employers in the county, yet it has seen more jobs destroyed by deaths than created by births. Is this industry the proverbial “canary in the coal mine” showing the first signs of something more fundamentally awry in York County’s economy?
J. Scott Moody is the chief economist of The Maine Heritage Policy Center. This summer and winter, Moody is authoring reports titled “Maine Business InsideOut” using the NETS data set. To receive copies, contact Moody at jsmoody@mainepolicy.org or visit www.MainePolicy.org. To read more Public Engagement, visit www.mainebiz.biz.
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