Birth-Death Ratio

DEFINITION of 'Birth-Death Ratio'

A figure that represents the net number of jobs provided from newly started businesses (births) and business closings (deaths) during a period of time, typically a month in conjunction with government-sponsored jobs reports. Birth-death figures are put out by the Bureau of Labor Statistics (BLS) as part of the monthly employment report; they use a rolling average to determine the monthly total based on historical averages over the past several years.

BREAKING DOWN 'Birth-Death Ratio'

The birth-death ratio is a major component of labor statistics because new businesses and small businesses create many jobs in the overall economy. It would be impossible to survey every company in the United States each month, sample sizes of about 150,000 are used and broad data is extrapolated from there.

A major criticism of the birth-death ratio is that the reported net gain/loss in jobs often becomes inaccurate during periods of business cycle inflection. If job growth has been steady for several years and then suddenly slows down, the birth-death statistic will tend to over-report the true number of jobs created until the historical data more closely represents the new state of economic growth.

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