Job Creation, Job Destruction and the Role of Small Firms: Firm-Level Evidence for the UK

Abstract

Evidence on job creation and destruction for the UK is still limited compared to that available from other countries. What evidence there is refers almost entirely to the manufacturing sector, with the most recent figures referring to the 1980s. There are therefore no recent estimates for the great majority of firms in the UK. In this paper we use firm-level data from 1997-2005 to calculate job creation and destruction rates for almost all sectors, including services. We show that firms in the service sector exhibit much higher rates of job creation and slightly higher rates of job destruction. One-third of new jobs are created by the entry of new firms, while half of lost jobs are destroyed by the exit of firms. Small firms (those with fewer than 100 employees) account for a disproportionately large fraction of job creation and destruction relative to their share of employment. This finding is robust to the definition of firm size used.