Joint workshop of the Committee on Industry, Innovation and Entrepreneurship (CIIE) and the Working...

prolegomena: what uk policymakers need to know about business demographyinternational cohort comparison: background & contribution

data overviewprimary decomposition

secondary decompositionclosing remarks

appendix: data &methods

Accounting for job growth:

disentangling size and and age e�ects

in an international cohort comparison

Michael Anyadike-DanesAston Business School and Enterprise Research Centre

contact:[email protected]

OECD workshop October 2013

Michael Anyadike-Danes Aston Business School and Enterprise Research Centre cohort comparison





prolegomena: what uk policymakers need to know

about business demography






5 brutal facts

every year a large number private sector �rms are born in the UK ∼typically between 200,000 and 250,000

most new born �rms are very small ∼ around 90% have less than 5employees

a decade later between 70% and 80% of those new born �rms willbe dead

of those which have survived to age 10 ∼ around 75% of those bornwith less than 5 employees will still have less than �ve employees

the �rms are born with about 1 million jobs ∼ a decade later thesurvivors employ just half a million






putting the facts together

a simple framework can be used to put these facts together and itleads us to some (possibly) encouraging facts about job growth

we start with a table which tracks �rms by size at birth from birth toa date � here 10 years � into the future

this is called an origin/destination table: the rows are origins ∼ thesize-band at birth; the destinations are size-bands 10 years later

data here is an average of four successive birth cohorts, �rms born infour successive years: 1998, 1999, 2000, 2001






Table A: origin destination table, uk �rms, birth to age10,

destination (age 10) size-band1-4 5-9 10-19 20+ dead all

origin 1-4 36.0 6.1 2.3 1.3 145.1 190.8(birth) 5-9 1.8 1.4 0.8 0.5 11.4 15.9

size 10-19 0.4 0.3 0.4 0.4 3.9 5.5band 20+ 0.2 0.1 0.1 0.7 2.6 3.7

all 38.4 7.9 3.6 3.0 163.1 216.0

Note: average of birth cohorts 1998 to 2001






Table B: origin destination table, uk jobs by size-band, birth

destination (age 10) size-band1-4 5-9 10-19 20+ dead all

origin 1-4 54.1 11.5 4.5 2.6 218.9 291.4(birth) 5-9 11.3 8.8 5.2 3.7 73.1 102.1

size 10-19 5.8 4.1 5.9 6.2 52.4 74.3band 20+ 13.8 6.2 7.0 145.0 334.7 506.7

all 84.9 30.6 22.6 157.4 678.9 974.5







Table C: origin destination table, uk jobs by size-band, age 10

destination (age 10) size-band1-4 5-9 10-19 20+ all

origin 1-4 64.7 40.0 31.0 86.2 222.0(birth) 5-9 4.1 9.3 10.7 36.4 60.6

size 10-19 0.9 2.2 6.2 30.0 39.3band 20+ 0.4 0.7 2.1 189.3 192.2

all 70.1 52.3 50.0 341.9 514.3







Table D: origin destination table, uk jobs by size-band '000, age 10 survivors, changebirth to age10

destination (age 10) size-band1-4 5-9 10-19 20+ all

origin 1-4 9.7 23.6 24.4 77.8 135.5(birth) 5-9 -4.5 0.4 4.8 26.6 27.3

size 10-19 -3.4 -1.5 0.4 23.2 18.6band 20+ -7.2 -3.8 -4.3 43.7 28.4

all �5.4 18.6 25.3 171.4 209.9







two (possibly) encouraging facts

a very small proportion ∼ less than 1% ∼ of the smallest (1 to 4job) �rms survive and make the transition to 20+ employees

but this 1% make a very large contribution to job growth ∼accounting for around one third of all (net) jobs added by survivors






international cohort comparison: background &

contribution






the project & the team

this paper uses data specially compiled by local experts in sixcountries on the cohort of �rms born in 1998

the other team members are:

Carl-Magnus Bjuggren, Linköping University and Dan Johansson,HUI Research and Örebro University, SwedenSandra Gottschalk, ZEW, GermanyWerner Hölzl, WIFO, AustriaMika Maliranta, ETLA and University of Jyväskylä, FinlandAnja Myrann, Ragnar Frisch Centre for Economic Research, Norway






the problem

Since (at least) David Birch's 1979 report on job generation in theUS the contribution of di�erent-sized businesses to job creation hasattracted attention � and been a source of (often acrimonious)controversy

it has recently been suggested � notably by Haltiwanger, Jarmin andMiranda (HJM, REStats 2013) � that previous conclusions aboutsize had been mistaken: because most �rms are born small, sizee�ects had been confounded with age e�ects

so is it younger or smaller �rms which are proli�c job creators?

HJM's conclusions: "once we control for �rm age there is nosystematic relationship between �rm size and growth" and thatyoung �rms exhibit "up-or-out dynamics"






contribution

we probe the role of size, controlling for age, by comparing thecohorts of �rms born in 1998 over their �rst decade of life, usingvariation across half a dozen northern European countries � Austria,Finland, Germany, Norway, Sweden, and the UK � to separate sizefrom age

in brief, there are three distinctive features of our approach:1 we use a �ner grained treatment of small size than is usual � we

divide �rms with less than twenty employees into three size-bands2 we cut through many of the measurement-related complications

produced by the potential confounding of age and size e�ects byanalysing birth cohort data

3 we use a purpose-built dataset constructed by national experts usinga commonly agreed measurement framework to make comparisonsacross countries






data overview






Table 1: Austria, Finland, Germany, Norway, Sweden & UK cohort98 �rms, 1998 & 2008

survivors survival bus/popbirth 2008 ratio (%) ratio(1) (2) (3) (4)

Austria 27403 8362 30.7 3.4Finland 14737 3539 23.8 2.9Germany 151075 45786 30.3 1.8Norway 13463 4100 30.5 2.9Sweden 36506 4284 11.8 4.1UK 239649 40836 17.0 4.1






Table 2: Austria, Finland, Germany, Norway, Sweden & UK cohort98 jobs '000, 1998 &2008

survivors di�erencesbirth birth 2008 (2)-(1) (3)-(2)(1) (2) (3) (4) (5)

Austria 93.1 37.8 64.6 -55.3 26.8Finland 38.7 15.9 32.3 -22.81 16.3Germany 472.3 171.3 315.9 -301.0 144.6Norway 120.7 46.6 71.2 -74.1 24.6Sweden 259.9 43.6 58.4 -216.3 14.8UK 1123.7 223.6 460.3 -900.1 236.7






Table 3: Austria, Finland, Germany, Norway, Sweden & UK cohort98 jobs per �rm, 1998& 2008

survivors growthbirth birth 2008 ratio rate(%)(1) (2) (3) (4) (5)

Austria 3.40 4.52 7.72 1.708 5.5Finland 2.62 4.51 9.12 2.024 7.3Germany 3.13 3.74 6.90 1.844 6.3Norway 8.96 11.37 17.36 1.527 4.3Sweden 7.12 10.19 13.64 1.339 3.0UK 4.69 5.47 11.27 2.059 7.5






primary decomposition






the decomposition (1)

avjobt =4∑

i=1

(avjobbs

i × fsdbs

i × growthi ) (1)

average surviving �rm at birth, size-band i : avjobbs

i

share of survivor �rms in size-band i : fsdbs

i

growth ratio for survivors in size-band i : growthi







we can re-write the �rst two terms as:

avjobbs

i = avjobb

i × rsrwi (2)

fsdbs

i = fsdb

i × rsrbi (3)

average �rm at birth, size-band i : avjobb

i

'relative survival ratio' within size-bands, size-band i : rsrwi

share of �rms in size-band i : fsdb

i

'relative survival ratio' between size-bands, size-band i : rsrbi







which lead us to:

avjobt =4∑

i=1

[(avjobb

i × rsrwi )× (fsdb

i × rsrbi )× growthi ] (4)

average �rm at birth, size-band i : avjobb

i

'relative survival ratio' within size-bands, size-band i : rsrwi

share of �rms in size-band i : fsdb

i

'relative survival ratio' between size-bands, size-band i : rsrbi

growth ratio for survivors in size-band i : growthi






Table 4: Austria, cohort98 job growth decomposition by size-band: birth to 2008

avjobb rsrw avjobbs fsdb rsrb fsdbs growth avjobt

(1) (2) (3) (4) (5) (6) (7) (8)

1-4 1.53 1.122 1.72 0.89 0.945 0.84 2.341 4.025-9 6.27 1.002 6.28 0.06 1.432 0.09 1.903 11.9610-19 13.50 1.012 13.66 0.02 1.475 0.03 1.751 23.9220+ 67.57 0.998 67.43 0.02 1.541 0.03 1.192 80.38






Figure1:Austria, the 'three ratios' by size-band, ratio (log scale)

size−band

ratio

(lo

g sc

ale)

0.6

0.8

1

1.3

1.7

2.1

2.7

1−4

5−9

10−

19

20+

rsrbrsrwgrowth






Table 5: Counterfactual decomposition by country of contributions to job growth ratiobirth to 2008, Austria baseline

avjobb fsdb rsrb rsrw growth inter total(1) (2) (3) (4) (5) (6) (7)

UK -0.19 0.05 0.00 0.04 0.55 -0.03 0.42FI -0.21 0.11 -0.08 0.12 0.58 -0.19 0.33GE 0.20 0.00 0.00 -0.02 -0.12 0.08 0.14NO -0.09 -0.17 0.00 0.02 0.12 -0.05 -0.17SW 0.03 -0.17 0.04 -0.09 -0.29 0.12 -0.36

Key: avjobb, average number of jobs per �rm at birth; fsdb, the �rm sizedistribution at birth; rsrb , the between relative survival ratio; rsrw , thewithin relative survival ratio; growth, the growth ratio; inter, interactione�ect; total, overall di�erence in growth ratio.






Figure 2: growth ratios by size-band, all countries, ratio (log scale)

size−band

ratio

(lo

g sc

ale)

0.6

0.8

1

1.3

1.7

2.1

2.7

3.5

4.5

1−4

5−9

10−

19

20+

UKFINGERAUTNORSWE






Table 6: Counterfactual decomposition of e�ect of size-band speci�c growth ratios bycountry, contribution to job growth ratio, birth to 2008, Austria baseline

growth ratio by size-band1 � 4 5 � 9 10 � 19 20+ inter total(1) (2) (3) (4) (5) (6)

UK 0.43 0.04 0.05 0.05 -0.02 0.55FI 0.35 0.05 0.14 0.05 -0.01 0.58GE 0.18 -0.06 -0.05 -0.18 -0.01 -0.12NO 0.11 0.00 -0.02 0.04 -0.01 0.12SW -0.24 -0.05 -0.01 0.02 -0.01 -0.29

Note: This is a decomposition of the growth rate term from Table 3.Column (6) of this table corresponds to column (5) of Table 6; forconstruction see text.






secondary decomposition






decomposition of size-band 1 � 4 at birth

avjobt

avjobbs=

4∑i=1

(gri × seli ×mobi ) (5)

The three right hand side components are:

the size-band speci�c growth ratios, one for each of the four'destination' size-bands (gri )

a 'selection' adjustment, which captures the fact that the averagesize of 1 � 4 �rms at birth varies slightly across their 'destination'size-bands � those which move into larger size-bands turn out tohave been slightly larger at birth (seli )

a 'mobility ratio', the proportion of �rms born in size-band 1 � 4which are in each 'destination' size-band in 2008 (mobi )






Table 7: Contributions of 1 � 4 size-band at birth to job growth ratio by destination(2008) size-band, Austria

destination (2008) size-band1-4 5-9 10-19 20+(1) (2) (3) (4)

growth 1.13 2.74 5.97 23.23selection 0.92 1.33 1.29 1.32mobility 0.800 0.134 0.044 0.022

contrib 0.829 0.489 0.339 0.675share(%) 35.6 21.0 14.5 28.9

Memo: sum of contributions is 2.332, the growth ratio for Austrian �rmsborn in size-band 1 � 4, see Appendix Table 1, column (5); di�erencesdue to rounding.






Table 8: Counterfactual decomposition by country of contributions to 1 � 4 size-band jobgrowth ratio, birth to 2008, Austria baseline

growth select mobility inter total(1) (2) (3) (4) (5)

UK 0.68 -0.09 0.54 0.21 1.33FI 0.59 0.23 0.25 0.02 1.10GE 0.20 -0.18 0.69 -0.16 0.54NO -0.20 -0.12 0.84 -0.19 0.33SW -0.46 -0.02 -0.60 0.31 -0.77

Note: This is a counterfactual calculation of the di�erence betweenAustria's 1�4 size-band growth rate decomposition from Table 8 and theother countries. Column (5) of this table is overall 1�4 growth rate forAustria less each country's 1�4 growth rate from Appendix Table 1column (5)Michael Anyadike-Danes Aston Business School and Enterprise Research Centre cohort comparison





closing remarks






summing up

In brief,1 con�rms perceptions about new-born �rms

typically very small 75% less than 5 employeesfew survive ten years � and even fewer of the smallest�rms born smallest which survive grow faster

2 variations in the performance of the very smallest accounts for aconsiderable proportion of variation in cross-country job growth

3 illustrates the power of a cohort approach to disentangle dynamics intwo importantly age-related phenomena: survival and growth






data(1)

The key dimensions of our 'benchmark' dataset are,

1 de�nition of a �rm � an employer enterprise, that is a business withat least one employee

2 de�nition of employee � a person who receives a wage or salary froma �rm

3 enumeration of employees � head count with no distinction betweenfull-time and part-time employees

4 �rm birth date � �rst employee joins

5 �rm death date � last employee leaves

6 sectoral coverage � the 'private' or 'business' sector (NACE rev1.1:15 to 74; 90 to 93)

7 enumeration of �rms � all employer enterprises in the private sector






data(2)

de�nitions designed to be implemented using the administrativedatabases (tax and/ or social security & OECD 'compliant')

such databases typically have close to universal coverage

but not always possible to distinguish between a de novo birth and�rms which are 'born' following the break-up of an existing enterprise

could not harmonise completely: Austria, Finland,Germany, Norway,and the UK, we count jobs (in Finland full-time equivalent jobs); inSweden we count persons

Note: the UK data is from the O�ce of National Statistics (ONS) and isCrown copyright and reproduced with the permission of the controller ofHMSO and Queen's Printer for Scotland.The use of the ONS statisticaldata in this work does not imply the endorsement of the ONS in relationto the interpretation or analysis of the statistical data.






method

we focus on the cohort of �rms born 1998, measured at birth and adecade later in 2008

the key data analytical construct is an 'origin/destination' (O/D)matrix whose 'origin' rows are four broad size-band categories � 1 �4; 5 � 9; 10 � 19; 20+ � at birth and whose 'destination' columnsare size-band categories in 2008.

each country team provided three of these matrices,1 an O/D matrix of �rm counts: this is a 4× 5 matrix, an extra column

is needed for �rms from each size-band which are 'dead' by 20082 an O/D matrix of employee counts in 1998: this is a 4× 5 matrix, an

extra column is needed for �rms from each size-band which are'dead' by 2008

3 an O/D matrix of employee counts in 2008: this is a 4× 4 matrix, byde�nition only 2008 survivors are counted






to read on ...

For the detail see:

Enterprise Research Centre Working paper No 2, available from:

http://enterpriseresearch.ac.uk/publications/

erc-research-papers


http://enterpriseresearch.ac.uk/publications/erc-research-papers

http://enterpriseresearch.ac.uk/publications/erc-research-papers

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