Skills and Incentives PromotingGrowth-oriented Entrepreneurship     Magnus Henrekson     Presentation at the Internat’l Wo...
Motivation and purpose• Gazelles/HGFs found to contribute  disproportionally to growth and job creation   – Seems to be th...
Key agents of change•   Entrepreneurs•   Inventors and Innovators•   Industrialists•   Skilled labor•   Venture capitalist...
Interacting agents of change                        Competent                        customers               Agents on    ...
The tax code• Key rates and schedules insufficient to  characterize the tax code• Tax code does not acknowledge these  cat...
Different taxes and their effectsCannot cover this in 20 minutes, just a few remarksTaxation of current capital income• di...
Taxation of stock options• capital or labor income?• effect of employment clause?• Instrumental for the distribution of cr...
Corporate taxation• statutory rate• two-tier taxation benefiting debt  financing?• accounting measures to lower  effective...
Labor market institutions• Enormous churning (every 7th job disappears  every year)• Wage-setting arrangements   – degree ...
Product market regulations• Quality of public goods: the lower and the less  certainty and political stability the more it...
Targeted programs• As a policy instrument in its own right   – Only in the incipient phase• As a second-best substitute   ...
Conclusions• HGFs/Gazelles key to growth and job creation• Many complementary competencies and agents in  complex interact...
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Ii c - henrekson incentives promoting growth-oriented entrepreneurship

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The upgrading of workforce skills is key to the competitiveness of SMEs. In today’s business environment there is a premium on innovation that enables firms to develop new products and services, new production processes and new business models. This requires both in-house innovation and the ability to absorb knowledge from other firms and organisations, both of which call for a skilled labour force. Skills are also a critical but understated resource for entrepreneurship seen in the sense of business creation. Similarly to workforce skills, entrepreneurship skills will boost the competitiveness of local businesses thanks to the improved strategic and management competences of the entrepreneur.

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Ii c - henrekson incentives promoting growth-oriented entrepreneurship

  1. 1. Skills and Incentives PromotingGrowth-oriented Entrepreneurship Magnus Henrekson Presentation at the Internat’l Workshop Skills Development for SMEs and Entrepreneurship organized by the Danish Business Authority and the OECD Local Economic and Employment Development Programme (LEED) Copenhagen, November 28, 2012
  2. 2. Motivation and purpose• Gazelles/HGFs found to contribute disproportionally to growth and job creation – Seems to be the case in the U.S. – But generally less true in Europe• What institutional conditions most likely to be conducive to HGFs? – Talented entrepreneurs supply effort – Incentives to expand if potential – Harmonization of diverse competencies and agents• Identify key agents
  3. 3. Key agents of change• Entrepreneurs• Inventors and Innovators• Industrialists• Skilled labor• Venture capitalists – Business angels – VC funds• Agents on the secondary (exit) market• Competent customers
  4. 4. Interacting agents of change Competent customers Agents on secondary marketsDevelopment of Commercial- Build largeviable idea ization industrial firm Entrepreneurs Industrialists Inventors Entrepreneurs Entrepreneurs Skilled labor VC agents
  5. 5. The tax code• Key rates and schedules insufficient to characterize the tax code• Tax code does not acknowledge these categories (income from e-ship etc)• Key agents interact in complex ways; details in the tax system likely to be of great importance
  6. 6. Different taxes and their effectsCannot cover this in 20 minutes, just a few remarksTaxation of current capital income• dividends• interest incomeCapital gains taxation• differences across assets• differences based on holding period
  7. 7. Taxation of stock options• capital or labor income?• effect of employment clause?• Instrumental for the distribution of created equity value across agents depending on their importanceTaxation of return on savings• differences across instruments• preferential treatment of pension savings
  8. 8. Corporate taxation• statutory rate• two-tier taxation benefiting debt financing?• accounting measures to lower effective taxation
  9. 9. Labor market institutions• Enormous churning (every 7th job disappears every year)• Wage-setting arrangements – degree of centralization and formalization – miminum wage laws – wage compression ”deprofessionalizes” service sector• Labor security mandates weigh more heavily on smaller and younger firms and on those with high business risk (HGFs)• Labor security mandates hamper the reallocation of workers, jobs and capital
  10. 10. Product market regulations• Quality of public goods: the lower and the less certainty and political stability the more it benefits large incumbent firms.• The extent to which sectors of high income elasticity of demand are open for private production and private purchasing power: education, personal care and health care.
  11. 11. Targeted programs• As a policy instrument in its own right – Only in the incipient phase• As a second-best substitute – Great rent-seeking risks – Cannot recruit the right people – Distortionary effects on other agents – No Silicon Valley as we know it until they got the key institutions in place • Capital gains taxation • Stock options taxation • Pension funds allowed to invest in VC
  12. 12. Conclusions• HGFs/Gazelles key to growth and job creation• Many complementary competencies and agents in complex interaction to take firm from small to large• Impossible to pick winners ex ante• Key institutions to harmonize incentives – The tax system: have to get the details right! – Labor market regulations and wage-setting institutions; do not tie entitlements to long-term tenure – Savings systems and social insurance as facilitators – Product market regulations enabling entrepreneurial process and product innovation

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