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Business Dynamism, Job Reallocation Rates and the UK Productivity Puzzle (1998-2018)


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Presentation to ISBE 2019 by Neha Prashar

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Business Dynamism, Job Reallocation Rates and the UK Productivity Puzzle (1998-2018)

  1. 1. Aston University Birmingham B4 7ET E:, Business Dynamism, Job Reallocation Rates and the UK Productivity Puzzle (1998-2018) Neha Prashar and Mark Hart
  2. 2. Main Research Objective • Analyse how the business stock in the private sector in the UK has changed over 1998-2018 and the relationship to recent productivity stagnation (the productivity puzzle) • Davis et al (2008) noted that higher turbulence and reallocation of jobs in the economy is productivity enhancing and leads to better living standards. • Particular focus on job creation and destruction pre-recession (1998-2008) and post-recession (2009-2018)
  3. 3. Data and Methodology • Data used is the ‘Business Structure Database’ (BSD) complied by the ONS sourced mainly from HMRC. • Job Creation = Total employment change due to new firms entering the market or firms expanding • Job Destruction = Total employment change due to firms exiting the market or firms contracting • Job Reallocation Rate = Job Creation + Job Destruction • Net Employment = Job Creation – Job Destruction
  4. 4. 4.6 5.1 4.1 8.8 9.6 8.0 6.2 7.4 4.8 6.2 6.4 6.1 0.0 5.0 10.0 15.0 20.0 25.0 30.0 1998-2018 1998-2008 2009-2018 Rate(%) birth (entries) expansion exits contraction JC JC JC JD JD JD Job Creation and Destruction in the UK (1998-2018) • Less dynamism post-recession. • Considerable drop in exits (11% in 1998 to 4% in 2018) • Drop in dynamism is consistent with stagnant productivity.
  5. 5. Job Creation and Destruction by Region (1998-2018) -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 S E LO NW NE W A S W W M S C E A Y H NI E M RATE(%) UK REGIONS net employment gains losses reallocations • East Midlands shows the lowest level of business dynamism. • The East of England and the South West experienced the highest overall net employment levels • The South East, London, North East and North West regions showed the highest level of turbulence in the job market, where over 27% of jobs were destroyed or created. • Northern Ireland saw the smallest drop of 0.7 percentage points, while the South East saw a drop of 7.1 percentage points.
  6. 6. Job Creation and Destruction by Sector (1998-2018) -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 ManufacturingElectricityConstructionWholesale and Retail Hotels and Restaurants TransportFinancialReal EstateOther activities RATE(%) SECTOR Net Emp. Change Job Gains Job Losses Job Reallocations • The highest level of business dynamism is in the hotel and restaurant service industry, which is to be expected as many of these jobs may be part-time, zero-hour contract or seasonal type employment. • There is a very sharp drop in job reallocation rates in the financial sector, where rates fell by 11.3 percentage points post-recession and manufacturing sector which saw a 5.8 drop in percentage points. • Overall, business dynamism across all sectors dropped post- recession.
  7. 7. Job Creation and Destruction by Firm Size (1998-2018) -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 1 employee 2 employees 3 employees 4 employees 5 to 9 employees 10 to 24 employees 25 to 49 employees 50 to 249 employees 250+ employees Rate(%) Net Emp. Change Job Gains Job Losses Job Reallocations • Firms with a single employee experience a higher level of job turbulence when compared with larger firms. • There was a slight decline post-recession in entry and exit rates across all of the different sized firms but trends remained the same. • Firms with 5 to 9 employees and 10 to 24 employees saw the least change post- recession – a drop of around 2 percentage points in job reallocation rates.
  8. 8. Conclusion • Post-recession saw a decline in JR rates in the UK. They have not yet returned to pre-recession levels and this is holds true at varying levels when looking at different regions, sectors and size. • This goes hand-in-hand with the slowdown in productivity. Less dynamism means less productivity-enhancing turbulence in the job market. • Businesses are hiring and firing all the time but it is the ‘normality’ of the scale of those actions which often goes unreported – in both good times and bad. • Grasping the level of job churn in underlying base assumptions on the future performance of the UK economy is fundamental for policy makers, especially with the recent political climate.
  9. 9. Thank you! Questions/Comments? Dr Neha Prashar ( Professor Mark Hart ( The data used here is from the Jobs and Turnover version of the Longitudinal Business Structure Database which can be accessed through the Secure Lab. The use of these data does not imply the endorsement of the data owner or the UK Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates