ERC Theme 6:Firm Dynamics, Job Creation and Productivity

Growth

Reference Group Presentation20 February 2014

Headline Activity since April 2013

• Contribution to ERC White Paper: “Supporting Sustained Growth Among SMEs – Policy Models And Guidelines”

• ERC Research & Insight Papers:– “Accounting for Job Growth: disentangling size and age

effects of an international cohort comparison”– “Localisation of Industrial Activity across England’s LEPs”– “Vital 6% Revisited”

New Research Projects – for BIS

• Localisation of Industrial Activity across England’s LEPs (ERC Research Paper No.15 – January 2014) – update of the 2001 analysis using the BSD for 2008 and 2012 – feeding into LEP SEPs and the Witty Review

• Understanding motivations for Entrepreneurship (kick-off - November 2013 – reporting in March 2014)

• Growth Accelerator Collaboration - building a ‘Growth Dashboard’ for the English LEPs: Key metrics:– Barriers to growth (GA diagnostic data)– % growing firms; % of firms £1-2m to £3-5m; % of start-ups getting to £1m in 3

years– Interim evaluation of Growth Accelerator

Engagement and Impact

• Overarching objective – inserting evidence into discussions about the nature, scale and impact of business support:– Grant Thornton/ BIS – Growth Accelerator CRM analysis– Involvement in LEP SEPs – though cluster work, HGF analysis and

business birth rate analysis (e.g., GBS LEP and Leeds City-Region LEP)– Scottish Government – business demography analysis – especially fast-

growing firms analysis– Early discussion on a joint policy paper with FSB – June 2014– Building a common evidence base with Centre for Entrepreneurs and

DueDil– Micro-entrepreneurs and growth (CDFA link; RSA “Power of Small”

project)– MSBs – action research – early discussions with RBS and their MSB

clients for a strategy clinic (ABS; WBS and BBS in the Midlands)

Research Plan for 2014

• HGFs Re-visited – “Moving on from the Vital 6%” • LEP-Level Analysis:

– “Localisation of Industrial Activity across England’s LEPs”– “Business Birth Rates and New Job Creation in England’s LEPs”

• Job Creation and Destruction – 2008-2013• Data Infrastructure• Job Growth• Productivity Work

“Moving on from the Vital 6%”b ERC Insight (Feb 2014)

HGFs in Context

Growth of a Cohort of Start-ups

• Just 11% of start-up firms born in 1998 survive until 2013.

• 60% of the surviving firms are job creators and the bulk of these job creators were born very small, with less than five employees and most of them remain very small and create very few jobs.

An Alternative Vital 6%!

• But within the class of very small firm start-ups there is a very small group (6% of them: 1,248 firms) which are extraordinary prolific job creators (EPJCs):

• ……between them accounting for 90 thousand added jobs,

about 40% of job creation by all 15 year survivors.

• For policy discussion purposes we need to abandon our reliance on an OECD HGF metric – it is an arbitrary definition and does not satisfactorily reflect the episodic nature of the growth process in rapidly growing small firms.

Job Creation & Destruction

Private sector job creation and destruction, by component, ratio to opening stock (%), 1998-2013

-15

-10

-5

0

5

10

15

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

rati

o t

o o

pe

nin

g s

toc

k (

%)

net birth expansion exit contraction

Are all LEPs Created Equal?

• There is virtually no relationship across LEPs between the business birth rate and net job creation.

• The (proximate) reason is that the death rate is very strongly (positively) correlated with the business birth rate across LEPs, and the difference between the birth rate and death rate is uncorrelated with the birth rate:

• in other words, LEPs with large birth rates have proportionally larger death rates.

• Whilst variations in the difference between the birth rate and death rate do account for some of the variation in rates of net job creation, the contribution to net job creation by continuing firms is more important almost everywhere.

Data Infrastructure

• Creating a linked micro-level database for the UK – enhancing the current longitudinal dataset of the whole private sector in the UK (1998-2013)

• Based on plant and firm-level BSD data liked to other ONS business survey data as well as other relevant datasets (e.g., Growth Accelerator CRM data) – the foundation of our work to explain the growth trajectory of small firms.

• Facilitates cross-theme projects – especially Themes 4 and 5

Job Growth Analysis

• HGF/EPJC growth trajectories -- by characteristics: age, size, sector, location, foreign ownership, multi and single work place

• Modelling job creation and destruction accounts -- by characteristics

• Job growth rate distributions -- by characteristics• LEPs and Scotland and Wales – and other

geographies – city-regions and rural areas

Productivity Work

• Initially turnover per job for single workplace firms: level, growth and growth rate distributions by characteristics

• Growth of the Fittest? Evidence of Productivity and High Employment Growth Firms in the UK - working in progress

• Decompose aggregate productivity (growth) and look at potential drivers and barriers to growth. This is best done on population data, so presumably BSD linked with ARD.

• Early discussions with Barclays have taken place about access to their business data

Discussion

• Other related issues we should be looking at that are of interest to you and where you would wish to be engaged?

• Do you have data or research evidence on these topics you can share with ERC?

• Are there other organisations we should be talking to?

Contact us:

If you would like any more information about Theme 6 and any of its activities please contact the Theme Lead, Mark Hart at mark.hart@aston.ac.uk or

Michael Anyadike-Danes at m.anyadike-danes@ston.ac.uk orJun Du at j.du@aston.ac.uk or Ying Zhou at y.zhou8@aston.ac.uk

More details about the activities of the ERC and our latest events can be found at:

www.enterpriseresearch.ac.uk