Dynamics and Job Creation in the UK - Michael Anyadike-Danes, Mark Hart and Jun Du
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Dynamics and Job Creation in the UK - Michael Anyadike-Danes, Mark Hart and Jun Du

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Dynamics and Job Creation in the UK - Michael Anyadike-Danes, Mark Hart and Jun Du Dynamics and Job Creation in the UK - Michael Anyadike-Danes, Mark Hart and Jun Du Presentation 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: m.anyadike-Danes@aston.ac.uk / mark.hart@aston.ac.uk / j.du@aston.ac.uk If you would like any more information about the ERC and any of its activities please contact the Director, Stephen Roper at stephen.roper@wbs.ac.uk or the Deputy Director, Mark Hart at mark.hart@aston.ac.uk. More details about the activities of the ERC and our latest events can be found at: www.enterpriseresearch.ac.uk