Joint workshop of the Committee on Industry, Innovation and Entrepreneurship (CIIE) and the Working Party on Industry Analysis (WPIA)

prolegomena: whatukpolicymakersneedtoknowaboutbusinessdemography
international cohort comparison: background & contribution
data overview
primary decomposition
secondary decomposition
closing remarks
appendix: data &methods
Accounting for job growth:
disentangling size and and age eects
in an international cohort comparison
Michael Anyadike-Danes
Aston Business School and Enterprise Research Centre
contact:m.anyadike-danes@aston.ac.uk
OECD workshop October 2013
Michael Anyadike-Danes Aston Business School and Enterprise Research Centre cohort comparison

international cohort comparison: background contribution
data overview
closing remarks
appendix: data methods
prolegomena: what uk policymakers need to know
about business demography

data overview
closing remarks
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 5
employees
a decade later between 70% and 80% of those new born rms will
be dead
of those which have survived to age 10 ∼ around 75% of those born
with less than 5 employees will still have less than ve employees
the rms are born with about 1 million jobs ∼ a decade later the
survivors employ just half a million

data overview
closing remarks
putting the facts together
a simple framework can be used to put these facts together and it
leads us to some (possibly) encouraging facts about job growth
we start with a table which tracks rms by size at birth from birth to
a date here 10 years into the future
this is called an origin/destination table: the rows are origins ∼ the
size-band at birth; the destinations are size-bands 10 years later
data here is an average of four successive birth cohorts, rms born in
four successive years: 1998, 1999, 2000, 2001

data overview
closing remarks
Table A: origin destination table, uk rms, birth to age10,
destination (age 10) size-band
1-4 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 5.5
band 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

data overview
closing remarks
Table B: origin destination table, uk jobs by size-band, birth
1-4 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 74.3
band 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

data overview
closing remarks
Table C: origin destination table, uk jobs by size-band, age 10
1-4 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 39.3
band 20+ 0.4 0.7 2.1 189.3 192.2
all 70.1 52.3 50.0 341.9 514.3

data overview
closing remarks
Table D: origin destination table, uk jobs by size-band '000, age 10 survivors, change
birth to age10
1-4 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 18.6
band 20+ -7.2 -3.8 -4.3 43.7 28.4
all 5.4 18.6 25.3 171.4 209.9

data overview
closing remarks
two (possibly) encouraging facts
a very small proportion ∼ less than 1% ∼ of the smallest (1 to 4
job) 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

data overview
closing remarks
international cohort comparison: background
contribution

data overview
closing remarks
the project the team
this paper uses data specially compiled by local experts in six
countries 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, Sweden
Sandra Gottschalk, ZEW, Germany
Werner Hölzl, WIFO, Austria
Mika Maliranta, ETLA and University of Jyväskylä, Finland
Anja Myrann, Ragnar Frisch Centre for Economic Research, Norway

data overview
closing remarks
the problem
Since (at least) David Birch's 1979 report on job generation in the
US the contribution of dierent-sized businesses to job creation has
attracted attention and been a source of (often acrimonious)
controversy
it has recently been suggested notably by Haltiwanger, Jarmin and
Miranda (HJM, REStats 2013) that previous conclusions about
size had been mistaken: because most rms are born small, size
eects had been confounded with age eects
so is it younger or smaller rms which are prolic job creators?
HJM's conclusions: once we control for rm age there is no
systematic relationship between rm size and growth and that
young rms exhibit up-or-out dynamics

data overview
closing remarks
contribution
we probe the role of size, controlling for age, by comparing the
cohorts of rms born in 1998 over their rst decade of life, using
variation across half a dozen northern European countries Austria,
Finland, Germany, Norway, Sweden, and the UK to separate size
from 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-bands
2 we cut through many of the measurement-related complications
produced by the potential confounding of age and size eects by
analysing birth cohort data
3 we use a purpose-built dataset constructed by national experts using
a commonly agreed measurement framework to make comparisons
across countries

data overview
closing remarks
data overview

data overview
closing remarks
Table 1: Austria, Finland, Germany, Norway, Sweden UK cohort98 rms, 1998 2008
survivors survival bus/pop
birth 2008 ratio (%) ratio
(1) (2) (3) (4)
Austria 27403 8362 30.7 3.4
Finland 14737 3539 23.8 2.9
Germany 151075 45786 30.3 1.8
Norway 13463 4100 30.5 2.9
Sweden 36506 4284 11.8 4.1
UK 239649 40836 17.0 4.1

data overview
closing remarks
Table 2: Austria, Finland, Germany, Norway, Sweden UK cohort98 jobs '000, 1998
2008
survivors dierences
birth birth 2008 (2)-(1) (3)-(2)
(1) (2) (3) (4) (5)
Austria 93.1 37.8 64.6 -55.3 26.8
Finland 38.7 15.9 32.3 -22.81 16.3
Germany 472.3 171.3 315.9 -301.0 144.6
Norway 120.7 46.6 71.2 -74.1 24.6
Sweden 259.9 43.6 58.4 -216.3 14.8
UK 1123.7 223.6 460.3 -900.1 236.7

data overview
closing remarks
Table 3: Austria, Finland, Germany, Norway, Sweden UK cohort98 jobs per rm, 1998
2008
survivors growth
birth birth 2008 ratio rate(%)
(1) (2) (3) (4) (5)
Austria 3.40 4.52 7.72 1.708 5.5
Finland 2.62 4.51 9.12 2.024 7.3
Germany 3.13 3.74 6.90 1.844 6.3
Norway 8.96 11.37 17.36 1.527 4.3
Sweden 7.12 10.19 13.64 1.339 3.0
UK 4.69 5.47 11.27 2.059 7.5

data overview
closing remarks

data overview
closing remarks
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

data overview
closing remarks
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

data overview
closing remarks
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

data overview
closing remarks
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 4.02
5-9 6.27 1.002 6.28 0.06 1.432 0.09 1.903 11.96
10-19 13.50 1.012 13.66 0.02 1.475 0.03 1.751 23.92
20+ 67.57 0.998 67.43 0.02 1.541 0.03 1.192 80.38

data overview
closing remarks
Figure1:Austria, the 'three ratios' by size-band, ratio (log scale)
size−band
ratio(logscale)
0.6
0.8
1
1.3
1.7
2.1
2.7
1−4
5−9
10−19
20+
rsrb
rsrw
growth

data overview
closing remarks
Table 5: Counterfactual decomposition by country of contributions to job growth ratio
birth 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 0.42
FI -0.21 0.11 -0.08 0.12 0.58 -0.19 0.33
GE 0.20 0.00 0.00 -0.02 -0.12 0.08 0.14
NO -0.09 -0.17 0.00 0.02 0.12 -0.05 -0.17
SW 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 size
distribution at birth; rsrb , the between relative survival ratio; rsrw , the
within relative survival ratio; growth, the growth ratio; inter, interaction
eect; total, overall dierence in growth ratio.

data overview
closing remarks
Figure 2: growth ratios by size-band, all countries, ratio (log scale)
size−band
ratio(logscale)
0.6
0.8
1
1.3
1.7
2.1
2.7
3.5
4.5
1−4
5−9
10−19
20+
UK
FIN
GER
AUT
NOR
SWE

data overview
closing remarks
Table 6: Counterfactual decomposition of eect of size-band specic growth ratios by
country, contribution to job growth ratio, birth to 2008, Austria baseline
growth ratio by size-band
1 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 0.55
FI 0.35 0.05 0.14 0.05 -0.01 0.58
GE 0.18 -0.06 -0.05 -0.18 -0.01 -0.12
NO 0.11 0.00 -0.02 0.04 -0.01 0.12
SW -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; for
construction see text.

data overview
closing remarks

data overview
closing remarks
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 specic growth ratios, one for each of the four
'destination' size-bands (gri )
a 'selection' adjustment, which captures the fact that the average
size of 1 4 rms at birth varies slightly across their 'destination'
size-bands those which move into larger size-bands turn out to
have been slightly larger at birth (seli )
a 'mobility ratio', the proportion of rms born in size-band 1 4
which are in each 'destination' size-band in 2008 (mobi )

data overview
closing remarks
Table 7: Contributions of 1 4 size-band at birth to job growth ratio by destination
(2008) size-band, Austria
destination (2008) size-band
1-4 5-9 10-19 20+
(1) (2) (3) (4)
growth 1.13 2.74 5.97 23.23
selection 0.92 1.33 1.29 1.32
mobility 0.800 0.134 0.044 0.022
contrib 0.829 0.489 0.339 0.675
share(%) 35.6 21.0 14.5 28.9
Memo: sum of contributions is 2.332, the growth ratio for Austrian rms
born in size-band 1 4, see Appendix Table 1, column (5); dierencesMichael Anyadike-Danes Aston Business School and Enterprise Research Centre cohort comparison

data overview
closing remarks
Table 8: Counterfactual decomposition by country of contributions to 1 4 size-band job
growth 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 1.33
FI 0.59 0.23 0.25 0.02 1.10
GE 0.20 -0.18 0.69 -0.16 0.54
NO -0.20 -0.12 0.84 -0.19 0.33
SW -0.46 -0.02 -0.60 0.31 -0.77
Note: This is a counterfactual calculation of the dierence between
Austria's 14 size-band growth rate decomposition from Table 8 and the
other countries. Column (5) of this table is overall 14 growth rate for
Austria less each country's 14 growth rate from Appendix Table 1

data overview
closing remarks
closing remarks

data overview
closing remarks
summing up
In brief,
1 conrms perceptions about new-born rms
typically very small 75% less than 5 employees
few 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 a
considerable proportion of variation in cross-country job growth
3 illustrates the power of a cohort approach to disentangle dynamics in
two importantly age-related phenomena: survival and growth

data overview
closing remarks

data overview
closing remarks
data(1)
The key dimensions of our 'benchmark' dataset are,
1 denition of a rm an employer enterprise, that is a business with
at least one employee
2 denition of employee a person who receives a wage or salary from
a rm
3 enumeration of employees head count with no distinction between
full-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 overview
closing remarks
data(2)
denitions designed to be implemented using the administrative
databases (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); in
Sweden we count persons
Note: the UK data is from the Oce of National Statistics (ONS) and is
Crown copyright and reproduced with the permission of the controller of
HMSO and Queen's Printer for Scotland.The use of the ONS statistical
data in this work does not imply the endorsement of the ONS in relation
to the interpretation or analysis of the statistical data.

data overview
closing remarks
method
we focus on the cohort of rms born 1998, measured at birth and a
decade 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' columns
are 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 2008
2 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, by
denition only 2008 survivors are counted

data overview
closing remarks
to read on ...
For the detail see:
Enterprise Research Centre Working paper No 2, available from:
http://enterpriseresearch.ac.uk/publications/
erc-research-papers

Joint workshop of the Committee on Industry, Innovation and Entrepreneurship (CIIE) and the Working Party on Industry Analysis (WPIA)

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