DynEmp: New cross-country evidence on the role of young firms in job creation, growth, and innovation
Chiara Criscuolo, Peter N. Gal, Carlo Menon 26 May 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Since well before the crisis, many OECD economies have been confronted with sluggish productivity growth. In the aftermath of the crisis, job creation has also stalled and has become an important policy issue. Business dynamics are at the core of the creative destruction process. Available evidence points to significant cross-country heterogeneity in the dynamism of businesses, even after taking into account differences in sectoral composition. This raises policymakers’ interest in understanding the role of framework conditions in this area.
Labour markets Productivity and Innovation
R&D, employment, growth, OECD, job creation, business cycles, firms, start-ups
Firm age, investment opportunities, and job creation
Manuel Adelino, Song Ma, David Robinson 12 February 2014
There is a strong link between entrepreneurship and growth – young firms were responsible for almost all net job creation in the US economy over the last 30 years. This column presents new research into the responsiveness of firms of different ages to investment opportunities. Firms aged 0–23 months create about twice the total number of new jobs in response to local income shocks than firms that are more than six years old.
Economists have long been concerned with understanding how firms respond to changing investment opportunities. Indeed, this question is central to ongoing policy discussions about economic growth and job creation, since the way firms create jobs is by increasing investment and employment in response to new economic opportunities. The startup process and economic growth are deeply interconnected – over the last 30 years, young firms were responsible for almost all net job creation in the economy (Haltiwanger et al. 2009, 2013, Stangler and Litan 2009).
Financial markets Labour markets Productivity and Innovation
employment, US, growth, entrepreneurship, job creation, firm age
Who creates jobs?
Ejaz Ghani, William Kerr, Stephen D O'Connell 04 December 2011
With millions of young people entering the global labour market each year, the question on their lips as well as policymakers’ on high is whether there will be enough jobs for them. But fewer are asking who actually creates these jobs. This column looks at data from India suggesting that young and small firms play a vital role. It argues that entrepreneurship works; policymakers just need to support it.
The role of entrepreneurs in job creation has a long intellectual tradition (Cantillion 1730, Knight 1921, Schumpeter 1942). While the great economic minds throughout history recognised the link between entrepreneurship, regional development, and job creation, controversies remain. Our understanding of entrepreneurship is still at an early stage (Glaeser et al 2009, Klapper and Love 2011). How does one quantify entrepreneurship? Do young/small establishments or large/established firms contribute to job growth?
Development Labour markets
India, job creation
Does fiscal policy matter? Is there a better way to reduce unemployment?
Roger E. A. Farmer , Dmitry Plotnikov 05 September 2011
Can government spending help the economy recover from a recession by boosting job creation and lowering unemployment? Or is it a waste of money? This column addresses this question and others using a unique framework. It explains why fiscal policy was effective at ending the Great Depression but it argues that a big fiscal expansion may not be the best solution this time round.
Economic theories that lack an independent role for business and consumer confidence have difficulty explaining the cause of financial crises like the Great Depression or the Great Recession (e.g. Woodford 2003, Kydland and Prescott 1982).1 Both economic calamities were preceded by large drops in asset prices that were not associated with any fundamental trigger.
Global crisis Labour markets Macroeconomic policy
job creation, fiscal policy, fiscal stimulus, multiplier effect
German recovery – it’s the supply-side but not government labour market and welfare state reforms
Wendy Carlin, David Soskice 14 August 2007
Private supply-side reforms in Germany are what caused the recovery – not government labour market and welfare state reforms. Further real wage cuts, generic labour and welfare reforms, or radical changes in corporate governance might not help. Future reform should focus on the functioning of the labour market without undermining the core labour system.
There is no consensus about the roots of the current German economic recovery. By contrast, two years ago in July 2005, there was unanimity amongst over 240 leading German academic economists who were signatories of a diagnosis and policy prescription. The state of the German economy was characterised as a deep, structural crisis and the demand was for drastic and painful reforms.
Europe's nations and regions
Germany, job creation, German recovery
German recovery: it’s the supply side
Michael Burda 23 July 2007
Germany has finally gotten aboard the train of labour market, supply-side oriented reforms initiated by Europe’s success stories -- Netherlands, Denmark, Ireland, and the UK. Italy and France would do well to follow suit
After almost a decade of slump, the German economy is finally growing again. Between 1995 and 2005, annual real growth averaged a meagre 1.4%, compared with 3.2% in the US, 2.9% in the UK, 2.1% in France and Denmark and 2.7% in the Netherlands. Clearly the “sick man of Europe,” Germany logged less than a third of EU’s overall cumulative rate of GDP increase over the same period. Now things look different: Growth in 2007 might top 3% in 2007, and many now expect the recovery to persist for several years.
Europe's nations and regions
Germany, growth, productivity, job creation