Job Flows and Job Quality by Establishment Size in the Finnish Manufacturing Sector 1980–94

This paper studies how employment patterns and growth vary with establishment size in the Finnish manufacturing sector during the period 1980–94. The findings are compared with the predictions of alternative theories of firm growth. The paper also examines some aspects of job quality in different size categories, including wages, labour productivity, working hours, labour turnover and the persistence of jobs. According to the findings, small establishments create and destroy jobs relatively more than large establishments. In addition, in the smallest size categories both the share of gross job creation and the share of gross job destruction is larger than the share of employment. However, there is no clear relationship between establishment size and net employment change. Furthermore, after studying different aspects of job quality, we can conclude that the jobs offered by small and large establishments differ greatly in many respects and it is difficult to evaluate the total welfare effect.     

Job Creation by Company Size Class: The Magnitude,Concentration and Persistence of Job Gains and Losses in Canada

The statistical observation that small firms have created the majority of new jobs during the 1980s has had a tremendous influence on public policy. Governments have looked to the small firm sector for employment growth, and have promoted policies to augment this expansion. However, recent research in the U.S. suggests that net job creation in the manufacturing small firm sector may have been overestimated, relative to that in large firms.The first part of this paper addresses various measurement issues raised in the recent research, reassess the issue of job creation by firm size, and pushes this work beyond the manufacturing sector by employing longitudinal data covering all companies in the Canadian economy. We conclude that over the 1978–92 period, as a group small firms did account for a disproportionate share of both gross job gains and losses, and net employment increases, no matter which method of sizing firms is used. Measurement does matter, however, as the magnitude of the difference in the growth rates between small and large firms is very sensitive to the measurement approaches used. Part one of the paper also produces results for various industrial sectors, and examines employment growth in existing small and large firms (i.e., excluding births). It is found that employment growth in the population of existing small and large firms is very similar. Attempts are made to introduce a job quality aspect to the analysis by using payroll rather than employment data. Payroll data allow any relative change in hours worked or wages paid in small (relative to large) companies to be incorporated in the findings. This did not significantly alter the conclusions reached using employment data only.The second part of the paper looks at concentration and persistence of employment creation and destruction within size classes. If growth is highly concentrated, knowing that a firm is small will provide little information about its prospects for growth. Most small firms would grow relatively little, or decline, while a few expanded a lot. It is found that both job creation and destruction is highly concentrated among relatively few firms in all size groups. There are fast growing firms in all size classes, and although most job creation is found in the small firm sector, the fastest growing large firms out-perform the majority of small firms in any given period. Finally, the employment creation performance of businesses are compared over two three-year periods. It is found that knowing that a firm is a high performer (in terms of jobs created) over one period is of only limited value in determining growth in the second period. This is particularly true among small firms. These results suggest that firms which expand rapidly during one period are replaced to some considerable degree by others in the subsequent period.     

International competitiveness,job creation and job destruction—An establishment-level study of German job flows

This study investigates the impact of international competitiveness on net employment, job creation, job destruction, and gross job flows for a representative sample of German establishments from 1993 to 2005. We find a statistically significant but economically small effect of real exchange rate shocks on employment, comparable to the one found in studies for the United States. However, contrary to the United States, the employment adjustment (among surviving firms) operates mainly through the job creation rather than the job destruction rate. Job destruction occurs essentially through discrete events such as restructuring, outsourcing and bankruptcy. We suggest that these findings are consistent with a highly regulated labor market, in which smooth adjustment is costly and possibly delayed.     

Firm size and job creation in Germany

This paper reports new results on the role of firms from various size classes in the job generation process in Germany. It is based on a unique longitudinal data set covering all manufacturing establishments that existed in at least one year between 1978 and 1993 in the German federal state Lower Saxony. We find that gross job creation and destruction rates tend to decline with firm size, while net job creation rates and firm size are not systematically related when firms are classified according to their average number of employees in the base and end year. Small firms create (destroy) quite a large share of all new (lost) jobs.     

Entrepreneurship,job creation and wage growth

This paper analyses the importance of entrepreneurs in terms of job creation and wage growth. Relying on unique data that cover all establishments, firms and individuals in the Danish private sector, we are able to distil a number of different subsets from the total set of new establishments—subsets which allow us to more precisely capture the “truly new” or “entrepreneurial” establishments than has been possible in previous studies. Using these data, we find that while new establishments in general account for one-third of the gross job creation in the economy, entrepreneurial establishments are responsible for around 25% of this, and thus only account for about 8% of total gross job creation in the economy. However, entrepreneurial establishments seem to generate more additional jobs than other new establishments in the years following entry. Finally, the jobs generated by entrepreneurial establishments are to a large extent low-wage jobs, as they are not found to contribute to the growth in average wages.     

Were Small Producers the Engines of Growth in the Canadian Manufacturing Sector in the 1980s?

Small firms are often seen to be the engines of growth. There are two main sources of empirical evidence that are adduced to support this conclusion. The first is that job creation has been coming mainly from small firms. The second is that the share of employment accounted for by small firms has increased in the past two decades. Both of these sources rely on a simple metric-employment. This paper asks whether changes in this metric affect the view of the role that small firms play in the growth process.The first section of the paper maintains employment as the measure that is used to evaluate the importance of small firms but modifies the raw measure of employment to correct for the fact that small firms pay lower wages than large firms. When this is done, small producers are no longer found to outperform large producers in terms of job creation over the 1970s and 1980s in the Canadian manufacturing sector.The second section of the paper changes the metric used to evaluate relative performance by moving from employment to output and labour productivity. The paper demonstrates that while small producers have increased their employment share dramatically, they have barely changed their output share. Small firms have been falling behind large firms both with respect to wages paid and labour productivity.     

Do small businesses create more jobs? New evidence for Europe

In this paper, we argue why, in our view, the so-called dynamic classification method should be favored when determining the contribution of small businesses towards job creation. First, it is the only method that consistently attributes job creation or loss to the size class in which it actually occurs. In addition, dynamic classification has two other advantages: (1) it is not vulnerable to the so-called regression to the mean bias, and (2) only a small number of aggregated data are required for its application. Using the dynamic classification, we analyze job creation within the different size classes for the 27 Member States of the European Union. Our main findings are as follows. For the EU as a whole, smaller firms contribute on a larger scale towards job creation than do larger firms. Net job creation rates decrease with each firm size class. This pattern occurs in most industries, however, not in all; the manufacturing industry and trade industry show different patterns. At the level of individual countries, the net job creation rate also tends to decrease with each firm size class. However, this relationship is not perfect.     

The canada-U.S. free trade agreement

This article examines the forces that caused Canada and the United States to negotiate the free trade agreement, its principal provisions, the projected welfare gains, and estimated labor adjustments. Focusing on the latter, the impact on manufacturing employment is expected to be positive but small in the United States and negative but small in Canada; with the agriculture and resource sectors losing employment shares in both countries. The impact on services will be negligible in the United States and positive in Canada. Focusing on specific industries, nonferrous metals sector appears vulnerable in the United States, while textiles, clothing, furniture and fixtures, electrical and nonelectrical equipment and machinery, nonmetallic mineral products, and fabricated metal products appear vulnerable in Canada. However, actual job losses could be significantly circumscribed by moderate growth and employee turnover, and within vulnerable Canadian industries, there are pockets of significant strength such as in office furniture and telecommunications equipment.     

The effect of firm formation and growth on job creation in the United States

This paper demonstrates the importance of new firm formation to economic growth. It begins by providing data that describe the United States as having had greater employment growth than most developed nations of the world over the last 25 years, and focuses upon why job growth in the United States has exceeded that of other nations.Job Creation by Firm Size. We first examine the data on the relative contribution of small and large firms to U.S. job growth. By summarizing research that is uniformly expressed in two-year periods and defines small firms as those with less than 100 employees, conclusive evidence emerges that small firms are the major sources of net new creation.Firm Entry/Exit Rates and Economic Growth. Further understanding of small firm job creation is obtained when we examine firm entry and exit data. Here we find that firm entry rates vary considerably from period to period (range: 10.4%–12.5%), whereas exit rates remain relatively stable from period to period (range: 9.6%–10.4%). Thus, variation in entrepreneurial activity—the formation of new firms—is the major cause of net increases in the number firms. In both the United States and the United Kingdom, net firm increases are positively related to overall economic activity.Firm Entry/Exit and Job Creation. Further exploration of this correlation can be conducted by examining job creation and loss defined by source: entries, expansions, exits, and contractions. The data for 1976 through 1984 shown here demonstrate that new entries account for 74.0% of the 50.8 million new jobs created. Expansions of existing firms accounted for 26.0%. Small firms (less than 500 employees) produced 54.6% of the entry jobs and 56.8% of the expansion jobs.On the other hand, job losses totaled 33.8 million, 79.0% due to exits and 21.0% to contractions. Small firms account for 53.6% of the jobs lost from exits and 47.8% of those lost from contractions. Overall, small firms account for 60.5% of the 17.0 million net new jobs.Given the data that show correlation between net firm formation rates and economic growth, the finding that entry rates vary more than exit rates, and the finding that new entries create most of the new jobs, it can be concluded that firm formation—especially small firm formation—is a significant factor in economic growth. Increases in small firm formation rates have a significant effect on net job creation.Schumpeter's Model and Observed Market Turbulance. Another finding from this data on job creation by entry, expansion, exit, and contraction is the large amount of job creation and destruction activity taking place. For the period studied, three jobs were created and two jobs destroyed for each net new job created. This describes a turbulent job market with many workers moving from job to job. The labor markets are much less stable that normally envisioned.This observed phenomenon fits well with Schumpeter's theory of capitalism; he proposes that capitalistic growth occurs because entrepreneurs use innovations to form new firms which enter existing markets. When successful, these growing new firms destroy existing market structures, causing decline of established firms while creating increased demand and producing overall economic growth. If Schumpeter is correct, one would expect to find high rates of firm formation and failure, and large numbers of jobs created by new firms, while many jobs are lost by exits and contractions of established firms. The findings reported here show this.Government Policy Affects on Entry/Exit. Our results also show that formation of small, new firms is a necessary requirement for economic growth. Historically, however, Government policy has not considered small firm entry as a central issue. Thus, government policies can and have had a negative effect on entry rates and therefore upon economic growth rates.Furthermore, high rates of new firm formation cause a great deal of turbulence in labor markets, with three jobs created and two lost for every one net new job. Such labor turbulence may be seen by policy makers as undesirable as it entails considerable worker movement from job to job. As such, policy makers have recently proposed policies to protect workers from job loss due to contractions and exits. However, such protection policies, as demonstrated in recent European experience, will also construct barriers to entrepreneurial entry. The result may be a decline in small firm entry and a decline in economic growth.Instead of protecting specific jobs, appropriate policies are those that facilitate movement of workers from job to job. Adequate unemployment compensation for short term unemployment, fully vested and portable pension plans, and retraining programs are examples of policies that allow the labor market to remain flexible while reducing the negative effect on those who lose jobs.     

Job Creation and Job Destruction by Small Firms: An Empirical Investigation for the Dutch Manufacturing Sector

This paper studies the differences in behaviour of small and large firms, concerning job creation and job destruction, in the Dutch manufacturing sector over the period 1978–1991. We find that both job creation and job destruction rates are higher in small firms than in large ones. In addition, we found that the persistence of jobs created in slumps are much higher for small firms than for large firms. Persistence rates of job destruction are, however, less connected to the state of the business cycle and increase with firm size. More importantly, small firms seem to reallocate their jobs in a continuous way, as job turnover moves independent of the business cycle. Large firms, on the other hand, reallocate counter-cyclically. An obvious explanation for this phenomenon is that small firms are better equipped to adjust to shifts in economic circumstances. Large firms adjust only slowly and for them reallocating jobs in a recession is more advantageous than in a boom.     

Ecological dynamics of industrial organizations in South Korea

By utilizing the ecological perspective, this study examines ecological dynamics of industrial organizations in the manufacturing sector of the Korean economy over the period between 1950 and 1990. First, this study investigates how a population of manufacturing establishments grew in size across different age cohorts. The investigation of the age structure of a population of manufacturing establishments shows that the overall growth trajectory follows, by and large, a pattern of dominance of large-scale production units. It also shows that expansion of existing manufacturing establishments rather than entry of new ones has been the significant contributing factor in accounting for the growth of industry. Second, this study examines how certain cohorts of organizations survived over time and how they differentially died out in the face of rapid environmental change. The examination of the underlying population volatility of manufacturing establishments shows that the net mortality rates of different birth cohorts decrease with age. However, during the periods of economic recession and political turmoil, old cohorts have higher net mortality rates than younger ones, indicating their vulnerability toward profound institutional realignments as well as their heavy reliance on political networks. This finding indicates that the liability of newness thesis should be applied with caution.     

Loan guarantees: Costs of default and benefits to small firms

Governments of most countries seek to encourage Small and Medium Sized Enterprise (SME) growth and the job creation that many believe is fostered by such growth. Substantive growth usually requires expansion capital. It is often perceived that compared with larger firms, SMEs face disproportionately less access to the debt capital they need for start-up, growth, and survival. Consequently, governments and trade associations have often intervened in credit markets by taking on the role of guarantor of loans that financial institutions advance to SMEs. For example, the Small Business Administration in the United States provides guarantees of loans made by banks to qualifying small firms. Similar schemes are in effect in, among other countries, Canada, Japan, the U.K., Korea, and Germany. Trade associations take on such roles in France, Spain, and other nations.Loans that support the expansion of small enterprises may convey significant benefits to the borrowing firms and, through job creation and retention, to the rest of society. However, to the extent that some borrowers are unable to meet the repayment obligations of their debt, guarantors also face material real costs of honoring their guarantee to the lenders. Loan guarantee programs are designed in a variety of ways. Often these programs do not appear to reflect guidance from economic theory or experience. This paper draws on empirical evidence to compare costs with benefits. In addition, it uses the results and economic theory to provide some guidance for the design of loan guarantee programs. Finally, the study shows that loan guarantee programs can be an effective means of supporting start-up, growth, and survival of new and risky enterprises. The work finds that substantial total and incremental job creation may be attributed to the Canadian loan guarantee program.The paper reviews previous attempts to conduct cost-benefit analyses of loan guarantee programs. It finds wide variation, internationally, in default rates. Published data suggests default rates vary from less than 5% (Germany) to more than 40% (U.K.). The empirical analysis reported here focuses on the Canadian implementation of loan guarantees, the Small Business Loans Act (SBLA). Findings include (1) loan guarantees granted under the terms of the SBLA provide an extremely efficient means of job creation, with very low estimated costs per job; (2) default rates are higher for newer firms, increase with the amount of funds borrowed, and vary widely by sector (borrowers in the retail and accommodation, and food and beverage sectors were significantly more likely to default than borrowers in other sectors); and (3) the widening eligibility to larger firms and to larger loans may not be well advised and is inconsistent with the goals of the program. Moreover, reducing the loan ceiling would arguably discourage fraudulent applications while servicing those SMEs most in need of early-stage capital.In addition, analysis of the lenders' motives suggests that default rates on the portfolio of guaranteed loans and, therefore, the costs of honoring guarantees, are particularly sensitive to the level of the guarantee. Small reductions in the level of the guarantee (for example, guaranteeing 80% of principal and accrued interest instead of 85%) could lead to substantial reductions in default rates.Debate persists in economic theory about whether or not government intervention in the credit market is warranted, in spite of the findings that loan guarantees seem to make positive contributions. Further analysis of these issues is advised.     

Who creates jobs in developing countries?

This paper investigates the contribution of small firms to employment, job creation, and growth in developing countries. While small firms (<20 employees) have the smallest share of aggregate employment, the small and medium enterprise sector’s (<100 employees) contribution is comparable to that of large firms. Small firms have the largest shares of job creation, and highest sales growth and employment growth, even after controlling for firm age. Large firms, however, have higher productivity growth. Conditional on size, young firms are the fastest growing and large mature firms have the largest employment shares but small young firms have higher job creation rates.     

美国制造业重振与中国的应对策略

祸起于虚拟经济的2008年金融海啸给美国实体经济带来毁灭性的破坏，出于全球经济格局衍变和解决国内现实问题的需要，美国制定和实施了一系列重振制造业的政策，并且取得了较好的效果。我国应在借鉴主要发达国家应对美国重振制造业的经验的基础上，结合本国的实际情况从制造业规划制定、转变经济发展方式、人才培育、税收和融资、竞争方向、国际规则利用等方面采取措施积极应对。     

The Effects of Globalisation on the US Labour Mark'et: Service Sectors Considered

How has globalisation affected employment and wages in the United States? Existing studies largely ignore the intersector labour movement between the manufacturing and service sectors by focusing only on the intrasector movement within the manufacturing sector. However, by decomposing the aggregate labour demand in the United States, we find that the intersector movement is more substantial than intrasector movement. Motivated by the decomposition results, this study presents a three‐sector model that includes a manufacturing sector and two service sectors at varying skill intensities. The model shows that offshoring might translate into smaller‐than‐expected wage changes because of the intersector labour movement. In line with the theoretical predictions, two notable empirical results are presented. First, an occupation's exposure to offshoring has non‐significant, albeit negative, effects on wages. Second, the more an occupation is exposed to offshoring, the lower its employment in the manufacturing sector as a share of its total employment. Furthermore, these effects are larger for more routine occupations or those requiring less education.     

Are Small Firms Really Less Productive?

Small and medium-sized establishments (SMEs) account for a large proportion of industrial employment and production in almost all countries. Moreover, the recent literature emphasizes the role SMEs play in nurturing entrepreneurship and generating new products and processes. Although SMEs could be a source of new ideas and innovations, there are substantial productivity differences between small and large establishments. In this paper, we analyze three sources of productivity differentials: technical efficiency, returns to scale, and technical change. Our analysis on the creation, survival, and growth of new establishments in Turkish manufacturing industries in the period 1987–1997 shows that all these three factors play a very important role in determining the survival probability and growth prospects of new establishments.     

Manufacturing entrepreneurs: An empirical study of the correlates of employment growth in the Tulsa MSA and rural East Texas

Manufacturing firms and firms totally dependent on manufacturing provide more than 50% of the jobs in the United States and other industrialized nations. In spite of the belief that the United States has become an “information economy,” it has recently been recognized by researchers, politicians and industry experts that the loss of America's leadership position in manufacturing threatens the American industrial position. In addition, small firms provided most of the job growth in the decade of the 80s and the most innovation and new products.The impact of these factors indicates the importance of determining what it takes to be successful as a manufacturing entrepreneur. Beyond the importance to the national economy of understanding the success-related factors in manufacturing entrepreneurship, several stakeholder categories have a vested interest in this information as well. Job creation, job growth and economic development become major agenda items in the 1992 presidential campaign. Also, investors would like to have a model of small firm growth on which to base their investments in start-up firms. Finally, political units are looking for mechanisms to create much-needed new jobs to provide tax revenue.The purpose of this study was to: (1) determine the relationship between eight literature-based predictor variables and employment growth in entrepreneurial manufacturing firms and (2) attempt to develop a meaningful linear model, incorporating as many significant variables as possible from the original eight that would explain variance in firm performance.The focus of this study was 327 manufacturing entrepreneurs located in the Tulsa Metropolitan Statistical Area and 13 contiguous counties in East Texas. Manufacturing entrepreneurs were defined as the founders of their firms. The firms included in the study were all less than ten years old, independent (not a division of some other firm) and had primary SIC codes between 2000 and 3999. Usable responses to a mail survey were 103, a 31.5% response rate.Results of this study suggest that age (of the entrepreneur) at founding, entrepreneurial management experience, industry experience and environmental scanning practices are significantly correlated with firm performance as measured by employment growth.     

The determinants of exit in an open economy

In this paper the determinants of exit are investigated for the manufacturing sector of the United States economy, which has been subjected to growing international influences. The analysis uses United States cross-sectional data. The results of the exit equation suggest that low profitability, declining industry growth, and displacement of incumbents by entrants foster exit. International influences are also seen to have an impact on U.S. manufacturing exit. Specifically, imports into an industry have a small effect on exit and protection has little influence in stemming exit.I would like to thank John Mayo, Don Clark, Ron Shrieves, Robert Feinberg, Joseph Shaanan and an anonymous referee for their comments on earlier drafts of this paper. The views in this paper do not necessarily reflect those of the Commission. The usual caveat applies.     

Does Exporter Turnover Contribute to Aggregate Productivity Growth? Evidence from Malaysian Manufacturing

Malaysia’s economic success is to a significant extent underpinned by its export‐oriented manufacturing sector. The sector has a large foreign presence, with MNCs attracted by the open trade and investment regime, and FDI‐friendly policies. Using unpublished manufacturing census data for 2000 and 2005, we apply the methodology by Foster et al. (1998) to decompose productivity growth. The analysis shows that exporters were more productive than domestic‐oriented establishments, and were distinctly more competitive. The empirical evidence also shows that establishment turnover is important in boosting productivity growth. In particular, we find that turnover of exporters made a larger contribution to aggregate productivity growth compared with domestic‐oriented establishments during the period from 2000 to 2005. Surviving establishments (those that operated in both years), on the other hand, made a negative contribution. It is noteworthy that entrants to export markets were more productive than surviving non‐exporters and even surviving exporters. Exiters from export markets or ‘export failures’, on the other hand, were less productive than continuing exporters. Given the importance of turnover to productivity growth, the government should ensure unrestricted entry to the export sectors for both foreign and domestic investors. Continuing with pro‐FDI policies is also important, given the keener global competition.     

Small Business Borrowing and the Bifurcated Economy: Why Quantitative Easing Has Been Ineffective for Small Business

In the early years following the financial collapse, federal officials and others believed that banks were not making loans to creditworthy small firms, who have accounted for most of the job creation in the United States in recent decades. Acting on this belief, a number of programs were created to increase bank lending to small firms. Overall, however, the data collected since the 2007/8 financial crisis suggest that the explanation for slow loan growth in the small business sector is not a result of supply constraints but rather a result of anemic loan demand among small firms. Thus, recent programs intended to increase small business borrowing through easing credit supply were doomed to fail. The weak demand for credit among small firms is representative of the sluggish performance of the small business economy postrecession, a marked contrast to the robust performance of larger firms and a reflection of a bifurcated economy.