Employment growth is at the heart of the policy debate. Cross-country Evidence on the role of small and young firms in contributing to employment creation is still scant. DynEmp is an innovative project led by the OECD Directorate for Science, Technology and Innovation aimed at providing new empirical evidence on the role of creative destruction, start-ups and young firms to support the design of better policies for employment and productivity growth based on confidential firm level data from national business registers.
The first phase of the project 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 (e.g., Australia, Denmark, and Turkey). 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.
- However, there is significant cross-country differences not only in the weight that small firms have in terms of employment, but also in their age profile; in some countries small firms are systematically older.
- The data show a clear decline in start-up rates in many countries.
- The financial crisis affected young firms relatively more, but given their larger weight in the economy, most jobs were destroyed by older businesses.
- Start-ups in volatile sectors and in sectors that exhibit higher growth dispersion are significantly more exposed to national policies and framework conditions than start-ups in other sectors and of incumbents in all sectors.
- Public policies 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. Structural reforms – e.g. improving the functioning of product, labour and capital markets, as well as promoting bankruptcy laws that do not overly penalise failure – are essential in this regard.
The DynEmp project is developed under the aegis of the OECD Committee on Industry, Innovation and Entrepreneurship and the Working Party on Industry Analysis, with the invaluable support of the DynEmp network
Cross-country evidence on start-up dynamics
The Dynamics of Employment Growth: New Evidence from 18 Countries
DynEmp: A Stata® Routine for Distributed Micro-data Analysis of Business Dynamics
What Drives the Dynamics of Business Growth?
The OECD MultiProd project: Micro drivers of aggregate productivity