dynamics and job creation in the uk - michael anyadike-danes, mark hart and jun du
TRANSCRIPT
WP6: Firm Dynamics and Job Creation in the UK: Taking Stock and
Developing New Perspectives
Michael Anyadike-Danes; Mark Hart and Jun Du
Overview
• We are motivated in this White Paper by a very simple question – “what types of firms create the most jobs in the UK economy?”
• We then ask a further pair of questions – “to what conclusions does the evidence lead us?” and “what are the choices for policy?”
Job Creation Narrative
• Three perspectives on the job creation process in the UK focusing on employer-only businesses: 1. Job Creation and Destruction – ‘classic method’ 2. High-Growth Firms and Job Creation – A Closer Look 3. Job Creation Re-Visited - From Growth Rates to
Growth Trajectories
• Foundation for our exploration, at a later stage, of the contribution of fast-growing small businesses to UK productivity growth.
Job Creation & Destruction
• Analyse how the business stock in the private sector in the UK has changed between 1998 and 2010 – specific focus on the key dynamics of job creation and destruction – a simple accounting framework
• These metrics help us to understand the level of turbulence in jobs and to analyse the type of firms which most contribute to job creation / destruction in the UK (replicate the Davis et al 2008 study for the US)
• Examine the average annual job creation and destruction rates between 1998-2010, as well as entry and exit rates.
Average Annual Job Creation and Destruction (1998-2010)
• 28% of all jobs in the UK private sector were either destroyed or created over a typical 12 month period
• a remarkable level of turbulence in the economy.
JCD – UK and US Metrics
• Average annual job creation and destruction rates were 15% and 13.4% respectively in the UK between 1998 and 2010.
• This compares to 16% and 15% for the 1998-2009 period in the US.
Headlines – Small Firms • The majority of jobs in the UK were created by small firms; they
also demonstrated the greatest levels of churn – intensified since 2008.
• Out of a total of 2.61 million jobs created on average each year between 1998 and 2010 existing small firms (i.e., less than 50 employees) contributed 34% (i.e., ~870,000 jobs)
• …………..while start‐ups (of which nine out of 10 employ less than five people at birth) contributed a further third (33%) – another 870,000 jobs.
• Smaller firms have been increasing their share of total employment year on year and in 2010 their share was triple that in 1998
• So size is important in the job creation narrative but so too is age -we return to this later.
HGFs & Job Creation Re-visited
• With respect to HGFs and job creation it appears that policy makers have been running somewhat ahead of the evidence.
• HGF-oriented policy has been enthusiastically promoted, even though it is accepted that the evidence base is very weak.
• So our motivation here is simple, to consider afresh answers to the question: “what proportion of job creation is contributed by high growth firms?”
HGFs & Job Creation Re-visited
Category of Firm Proportion of
Job Creating
Firms
Proportion of Job
Creation
New firms
(born between 2007 &
2010)
61% 36%
Small and Larger firms –
non-HGF
(10 or more employees)
6% 22%
High-Growth Firms
(OECD Definition)
1% 22%
Micro-enterprises – non-
HGF
(less than 10 employees)
27% 15%
Young firms
(born in 2007)
5% 5%
Job Creation by Firm Category (% share)
HGFs in Context
• Clearly HGFs are relatively the most prolific category of job creating firms…………..
• ….but, their closest comparators (i.e., 10 or more employees) – the larger non-HGFs – are quite prolific too.
• Definitions are important – analysis and interpretation of the evidence which gloss over the detail of the definitions may seriously mislead.
Growth Trajectories/Paths
• HGF metric does not provide much insight into the dynamics of job creation over a firm’s life,
• ………..because the metric turns on a growth rate which it uses as a proxy for job creation.
• Need to capture the interplay between growth and survival (age of central concern) – so a necessary step is to move away from growth rates as the central concern towards ‘growth trajectories’
• Our shorthand term for the dynamics of job creation over a firm’s life.
UK Business Demography – 5 ‘brutal’ facts
1. every year a very large number of private sector firms are born in the UK ~ typically between 200,000 and 250,000 firms;
2. most new born firms are very small ~ around 90% have less than 5 employees;
3. a decade later between 70% and 80% of those new born firms are likely to be dead;
4. a cohort is born with about 1 million jobs ~ a decade later the survivors employ just half a million;
5. of those firms which have survived to age 10 ~ around 75% of those born with less than five employees will still have less than five employees.
Growth Trajectory (20+ jobs in 2008)
An Alternative ‘Vital 6%’
• Focus on the 1998 cohort of births and looking at those job creating firms over 10 years
• 1,207 firms (6%) create 32% of jobs by 2008
Much more to do……
• What we don’t yet know is much about the pace of job creation at the firm-level.
• For example, we don’t yet know whether there is
any uniformity in the performance the small group of very small extraordinarily prolific job creators;
• ………..nor whether there are any firms not in that
group which would have been had we interrogated the data at some other time horizon.
Immediate Actions
• Investigate the growth trajectories of firms – tracking their employment history from birth to (say) age ten,
• ……..because from such trajectories we can map directly into job creation.
• Indeed, such a ‘cohort’ approach is beginning to gain some traction in the UK and in the wider international community of researcher and policymakers.
Connecting to OECD Work
• OECD are engaged in collecting data to analyse employment growth and (ultimately) productivity
• builds on earlier work on international comparisons of employment growth rate distributions reported by Bravo-Biosca (NESTA)
• it makes use of expert teams in 14 countries to collect data compiled from firm-level records using harmonised definitions
• the work is in progress, but they intend to investigate:
– the relative importance of age and size to job creation and employment growth
– the growth trajectories of a birth cohort firms over their first 5 to 10 years of life
Policy Discussion
• On its own the job creation narrative does not yet track into a set of clear conclusions for policy.
• The analysis, for example, treats all jobs as equal and tells
us nothing about the persistence of those jobs. • We are also silent on the leadership role of the owner-
manager(s) and managerial capabilities in the firm-level growth dynamic.
• So while we can identify prolific job creators in the UK
economy we are unable to say too much more at this juncture based on this analysis alone.
Policy Discussion (2)
• Missing from this set of ‘facts’ is an understanding of the processes which drive them, which is required if we are to develop a robust set of policy interventions.
• In the meantime what can we usefully say about the policy
implications? • There is an obvious tension in existing policy discussions between
the focus on developing the growth potential of a small number of existing firms and the promotion of start-ups.
• Our evidence suggests that both start-ups and established
businesses have rapid growth potential - it depends on the timescale.
Looking Ahead
• Build a wider range of job creation metrics - to better understand the drivers of both employment and productivity growth at the level of the firm.
• Closer look at churn rates and the extent to which they might help us understand the growth trajectories of small businesses.
• Connection to firm-level research on innovation and exporting as well as finance - to develop a profile of the most prolific job creators in the UK economy.
Contact us:
The authors: [email protected] / [email protected] / [email protected]
If you would like any more information about the ERC and any of its activities please contact the Director, Stephen Roper at [email protected] or
the Deputy Director, Mark Hart at [email protected].
More details about the activities of the ERC and our latest events can be found at:
www.enterpriseresearch.ac.uk