Each year, while thousands of businesses grow and succeed, many others weaken and shut down. These dynamics, in turn, are reflected in the flow of factors of production (i.e., labor and capital) that are constantly being reallocated among businesses.

As stated by University of Maryland economics professor John Haltiwanger, the sorting of successful business endeavors from unsuccessful ones is a central and necessary part of our market economy, and it is essential that the public and policymakers understand this process.1

Our previous studies show that the reallocation of employment has been low in the current recovery compared with what happened in past recoveries.2 Business Employment Dynamics data from the Bureau of Labor Statistics reveal that employment turnover was significantly lower following the Great Recession than following the former two recessions, in 2001 and 1990. The same trend appears in the creation of startups.3 By the first quarter of 2010, business closings declined to prerecession levels for both the nation and the Eighth District, but business formations were slower to recover