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 non-trivial 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.