Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
We have shown how important the Birth - Death estimate of small business made by the BLS is to the employment number. So the all important question is can the BLS properly gauge small business activity?
Luckily for us, and this is what Minyanville is all about, we have some very experienced people out there. A Minyan timely answers our question:
Dear Professor Succo,
About a decade ago when I was a business strategy consultant, we were hired by a lobbying group for small business to provide some advice. Part of the assignment involved determining how many small businesses were in existence and their average longevity.
I had a crack team of 4 researchers search for reliable statistical data on that subject for a couple of months, and they came up dry; the only data they could find were circular-i.e. numbers that were widely circulated but did not have an origin based in fact. The best source was the membership data base, but it was so flawed as to render it useless.
We tried to develop our own methodology for estimating the population of small businesses and their life cycle, but found for a wide variety of reasons it was an near-impossible task (including such fundamentals as the definition of "a business", reliably determining whether or not a business was in fact "active," what constitutes an "employee," etc).
A review of the literature showed that everyone else that had seriously tried to come up with an accurate estimate had failed. After a significant investment of time and brain power, we gave up and used a substitute measure that met our specific analytical needs.
If the BLS purports to be estimating small business formations and their hiring patterns, you can be sure that the numbers are totally fictitious.
Minyan Robert Schneier
Enough said. Thank Robert!
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