Industry and entrepreneurship

Employment dynamics, young businesses and allocative efficiency

 

 Just published

 Business Dynamics and Productivity
 March 2017

A dynamic business environment plays an important role not only as a key driver of job creation but also as an engine of productivity growth. A growing body of research highlights significant differences in business dynamics across countries and over time, in particular over the different phases of the business cycle. However, our understanding of these differences remains patchy, and this makes it more difficult for policy makers to implement economically efficient policies.

This collection of studies aims to fill this gap by providing new evidence on business dynamics from a cross-section of countries of different sizes, with different market and structural characteristics, and which are at different stages in their development process. The studies focus in particular on Belgium, Brazil, Canada, Costa Rica, Japan, New Zealand, Norway and the United Kingdom, shedding new light on how firms which differ in terms of their size, age, sector and other characteristics, respond to economic shocks, with a particular focus on differences in their responses to the last decade’s global financial crisis. Evidence collected in this volume also aims to provide a better understanding of the contribution of business dynamics to aggregate productivity and of the effects of economic policies across different firms and countries. Thus, it will help policy makers design better policies, harnessing productivity and employment growth in support of more inclusive and sustainable societies.

 Business Dynamics and Productivity

 The DynEmp project

In a period of sluggish employment growth and disappointing productivity trends in most OECD countries, the central role played by start-ups and young firms in creating jobs and bringing innovations to market acquires renewed importance in the policy debate.

The OECD DynEmp project presents new evidence on the employment dynamics of start-ups and incumbents across more than 20 OECD and non-OECD economies. While entrants disproportionally contribute to job creation in all countries, significant differences exist in the extent to which they manage to do so. As shown in a recent report, "Cross-country Evidence on Start-up Dynamics", these cross-country differences can be analysed looking at differences in the job contribution of start-ups at the time of entry, determined by the combination of entry rates and average size at entry; and at differences in the post-entry job creation by start-ups, which in turn depends on the post-entry growth and survival rate.

The DynEmp report "No Country for Young Firms? Start-up Dynamics and National Policies" also suggests that national policies and framework conditions are likely to explain some of these differences. Policy failures appear to hamper significantly more start-ups than incumbents, especially in the most risky and volatile sectors, as well as in sectors that are more financially dependent.

The first phase of the project (DynEmp Express) led to the collection of a new database based on firm-level sources which presents a detailed portrait of the business structure and dynamics of 17 OECD countries plus Brazil over the period 2001-11.

A number of significant extensions are implemented in the new phase of the project entitled DynEmp v.2. First, the DynEmp network has been expanded to include several additional economies. Second, DynEmp v.2 now includes a more disaggregated analysis of transition dynamics allowing for the investigation of start-up dynamics in greater depth. Third, the dataset allows for a more granular analysis at the 2-digit sectoral level.

 The main findings of the project are:

  • Among small and medium-sized enterprises (SMEs), young firms play a central role in creating jobs and enhancing growth and innovation. On average across all countries and years, young firms account for 17% of employment but create 42% of jobs.
    Across all economies analysed, it is only a tiny fraction of start-ups that actually contribute substantially to job creation.
     
  • The data show a clear decline in start-up rates in many countries.
  • Start-ups in volatile and risky sectors are significantly more exposed to national policies and framework conditions than start-ups in other sectors and incumbents in all sectors. However, these are also the sectors where there most high-growth firms operate.
     
  • Public policies (e.g. in the area of bankruptcy procedures, contract enforcement, and civil justice efficiency) can help unleash the growth potential of young, innovative firms by enabling them to experiment with new business models and by fostering the reallocation of resources towards the most productive firms. 



Reports and data

No Country for Young Firms? ¦ Policy note xls
Cross-country evidence on start-up dynamics xls
The Dynamics of Employment Growth: New Evidence from 18 Countries xls
DynEmp: A Stata® Routine for Distributed Micro-data Analysis of Business Dynamics  xls
What Drives the Dynamics of Business Growth?  
The OECD MultiProd project: Micro drivers of aggregate productivity