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High-employment-growth firms – persistence over time and policy implications

High-employment-growth firms – persistence over time and policy implications. Björn Falkenhall Swedish Agency for Growth Policy Analysis. Background. Research shows that most firms do not grow at all, and that most new jobs originate from a small number of high-growth firms

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High-employment-growth firms – persistence over time and policy implications

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  1. High-employment-growthfirms – persistence over time and policy implications Björn Falkenhall Swedish Agency for Growth Policy Analysis

  2. Background • Research shows that most firms do not grow at all, and that most new jobs originate from a small number of high-growth firms • These firms might carry important policy implications, and they have therefore received an increasing amount of attention among policymakers in recent years • Most studies of HGFs do not examine what happens to them over time, which is a limitation • If HGFs are persistent over time, then we might learn something from investigating them. This is, however, not possible if high growth rates are not persistent over time

  3. Purposeof the study • The purpose of the study (The dynamics of high-growth firms: Is high-growth persistent?) is to analyze if growth of Swedish firms during the period 1999-2008 are characterized by persistence • The analysis is based on data from Statistics Sweden and includes all private firms with more than one emloyee in all sectors in Sweden. Number of employees is used as growth indicator • The study is conducted by Sven-Olov Daunfeldt (HUI Research) and Daniel Halvarsson (Ratioinstitute) on behalfofGrowthAnalysis

  4. The dynamicsofHighGrowthFirms

  5. Two different methodsareused • Growthequation: • Transitionprobabilities(the probabilityto transit from onecategorytoanother in the growth distribution between different periods in time):

  6. Results for different growthcategories

  7. Results for different firmsize

  8. To conclude • The resultsindicatethatfirmgrowthis negativelycorrelated over time • The negative correlation is espacially strong for HGFs, butmainlyduetomicrofirms • However, the results from the transitionprobabilityanalysis show thatHGFsaremorelikelythanmostotherfirmstoexperience positive growth, but not as high as before • Observed HGFswillmostlikelynot be HGFs in the next (threeyear) period, ”one hit wonders” • Whatare the policy implications?

  9. Competencies and institutions fostering HGF* • Actorsofchange, a nexus ofeconomicactorswithcomplementarycompetenciesthatare vital in order to generate and commercializenovelideas • The institutionalframeworkdetermines the incentives for theseindividualstoaquire and utilizeknowledge, and thus the creationofHGFs • Pivotalroleplayed by tax structures, labor market regulationsand the contestabilityof service markets • Distortionsintroduced by thesethreebundlesof institutions disfavoryoung, small firmswithin the service sector (frequentamongHGFs) * Henrekson& Johansson (2009)

  10. Productivitygrowth in the service sector • Annual US productivity growth was nearly a full percentage point higher than EU-15 during the period 1995-2008. Three-quarters of this gap is accounted for by market services (Uppenberg, 2011) • The difference in productivity growth between manufacturing and services is particular big in Germany where the service sector is protected from competition and relative inefficient (The Economist, 3/18/2012) • In Sweden, the private service sector contribution to labor productivity was higher than manufacturing from 1994 to 2009, but with rather large variations between different service sectors(Growth Analysis, report 2011:04)

  11. Regulation and economicgrowth • Regulationsthatrestrictcompetitioncurblabor or MFP growthsignificantly, the negative effectstendsto be stronger in ICT-intensive industries(Arnold, Nicoletti & Scarpetta, 2011) • Productiondynamicsarelower in countriesthathave a relativelyheavyregulatoryburden. (GrowthAnalysis, report 2010:14) • The reallocationofresourcestowards the highest-productivityfirm is stongerwhereregulationsarelighter(Arnold, Nicoletti & Scarpetta, 2011) • The regulatoryburdendoes not affectnecessitybasedentrepreneurship, butthere is a negative correlationbetweenregulations and oppurtunitybasedentrepreneurship(GrowthAnalysis, 2010:14)

  12. Conclusions • Doubtfulwhether studies of HGF at onepoint in timecould generate insightsabouthoweconomic policy should be formulated • The regulatoryburden is important for all firms, but in particularimportant for ICT-intensive industries and opportunitybasedentrepreneurship, i.e. potential HGFs • The importanceof the institutionalframework, in particular tax structures, labor market and anticompetitiveregulations • A focus on improving the general framework for business canthereforealso be regarded as the main policy measure for HGFs

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