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Table 2. Interpreting worker flows Firm condition Worker condition Possible interpretation Predecessor category 1 F1 True : Firm exit W1 True : 80 of workers go to successor ID change or mergeracquisition 2 F1 True : Firm exit W1 False : 80 of workers go to successor Spinoffbreakout or reason unclear 3 F1 False : Firm continues W1 True : 80 of workers go to successor ID change or mergeracquisition 4 F1 False : Firm continues W1 False : 80 of workers go to successor Spinoffbreakout or reason unclear Successor category 1 F2 True : Firm entry W2 True : 80 of workers come from predecessor ID change or spinoffbreakout 2 F2 True : Firm entry W2 False : 80 of workers come from predecessor Mergeracquisition or reason unclear 3 F2 False : Firm continues W2 True : 80 of workers come from predecessor ID change or spinoffbreakout 4 F2 False : Firm continues W2 False : 80 of workers come from predecessor Mergeracquisition or reason unclear 1. The original administrative entity shut down. 2. More than 80 of the workers in the predecessor firm moved to the successor firm. 3. The successor firm was a new entrant. 4. More than 80 of the workers in the successor firm came from the predecessor firm. This sequence of events strongly suggests that the factors of production in the two firms are virtually the same, and that the flows are the result of either an unlinked administrative edit or a change in ownership. The evidence is less strong for the 1, 3 category, where the successor firm was already in existence, but this is included because of the timing issue noted by Pivetz et al. 2001, and also because it is possible that the few employees in the successor firm before the event form part of a shell cor- poration United States Department of Labor, Employment and Training Administration 2002. It is, of course, possible to in- vent alternative scenarios, such as in the 1, 3 cell, whereby a startup firm is able to woo and attract large numbers of work- ers from another firm. Similar arguments can be made for the combination of events in the 3, 1 and 3, 3 categories. Some of the combinations identified in Table 3 are consistent with the sequence of events that occur during a merger or acqui- sition. The 1, 2 cell, for example, identifies a firm shutdown combined with the move of 80 of workers into a newly born firm, where those workers represent 80 of the new firm’s workforce. The 1, 4 cell represents the same transition, al- beit for a successor that is an existing firm. Similarly, the 3, 2 and 3, 4 cells identify a continuing firm that has 80 of its workers transitioning to a newly born firm column 2 or a con- tinuing firm column 4 also suggesting that either a merger or an acquisition took place. The final task involves identifying insourcing and outsourc- ing relationships. Typically, these types of arrangements in- volve peripheral firm functions, such as payroll or human re- sources, and thus are not likely to make up 80 of either the predecessor or successor firm’s employment. Therefore, the best candidates for these types of transitions are likely to be found in the “reason unclear” cells. In each of these cells, a sub- stantial cluster of workers at least 5, but 80, move from the predecessor to the successor firm and account for 80 of the Table 3. Successorpredecessor flow and firm birthdeath combinations Link description Successor category

1. 80

of successor comes from predecessor and successor is entrant

2. Less than 80 of suc- cessor comes from pre-