System Working Paper 18-16

Early-Stage Business Formation: An Analysis of Applications for Employer Identification Numbers

Kimberly Bayard | Board of Governors of the Federal Reserve System
Emin Dinlersoz | U.S. Census Bureau
Timothy Dunne | University of Notre Dame
John Haltiwanger | University of Maryland
Javier Miranda | U.S. Census Bureau
John J. Stevens | Board of Governors of the Federal Reserve System

Published June 28, 2018

This paper reports on the development and analysis of a newly constructed dataset on the early stages of business formation. The data are based on applications for Employer Identification Numbers (EINs) submitted in the United States, known as IRS Form SS-4 filings. The goal of the research is to develop high-frequency indicators of business formation at the national, state, and local levels. The analysis indicates that EIN applications provide forward-looking and very timely information on business formation. The signal of business formation provided by counts of applications is improved by using the characteristics of the applications to model the likelihood that applicants become employer businesses. The results also suggest that EIN applications are related to economic activity at the local level. For example, application activity is higher in counties that experienced higher employment growth since the end of the Great Recession, and application counts grew more rapidly in counties engaged in shale oil and gas extraction. Finally, the paper provides a description of new public use dataset, the “Business Formation Statistics (BFS),” that contains new data series on business applications and formation. The initial release of the BFS shows that the number of business applications in the 3rd quarter of 2017 that have relatively high likelihood of becoming job creators is still far below pre-Great Recession levels.

Read the PDF ›