One source of earnings instability is suggested by a study of job growth in New York during the last expansion by economists Rae Rosen and John Wenninger of the Federal Reserve Bank of New York. The study looked at state employment data from 1984 through 1988 for companies in three categories: those with less than 10 employees, those with 10 to 24 workers, and those with 25 or more. The data were analyzed annually, so that companies that had grown or shrunk were put in appropriate categories in subsequent years.
The results: In all categories, net job growth each year was due entirely to the entry of new companies--that is, existing companies posted more job losses than gains. Further, two-thirds of the jobs were created by new companies with fewer than 25 workers, with the most coming from those firms with fewer than 10. Since the latter group's annual failure rate exceeded 16%, its workers obviously had a low degree of job security.