Jobs and the business life-cycle in the UK

Abstract

There have been a number of statistical studies in recent years of the firm life-cycle, its effects on employment and the role of small firms in the job generation process. They have all followed the changes which take place in a population of firms through time. Birch based his USA national analysis on the Dun and Bradstreet computer files for 5.6 million establishments, covering 80% of all private sector employment, and some of his findings were of a controversial nature. Most British studies to date have been limited to single regions, looking at aspects of job generation in detail. There is now a series of local studies for the regions of Glasgow, the Midlands, Cleveland, Manchester and Merseyside. The DTI (Ganguly, 1982a) has carried out an important national study based on VAT data, and a sectoral study (Macey, 1982) of manufacturing. The study described here used the data of Dun and Bradstreet (UK), the commercial credit rating, market research and information company, to estimate job generation performance in Britain between 1971 and 1981. Computer software was developed to enable us to analyse the file, which contains records for 180 000 establishments in 1971, and 200 000 in 1981. Despite its size, it is important to bear in mind that it is only a sample, and that bias has been introduced into it by the method of data collection and by the commercial purpose for which it is intended. It is estimated that the file represents about 75% of private sector employment. To check on accuracy the data are compared with ACOP and other aggregate statistics, and a questionnaire survey was carried out comprising a sample of almost 1000 firms. Small firms performed very well, providing 36% of all new jobs, over the 1971–81 period whilst consisting of only 12% of all employment in the sample in 1971. Firms employing between twenty and ninety-nine people also performed well, producing more jobs than their proportion of employment. The ‘fertility ratio’ of job creation to employment suggests, with some consistency, that the small plants have a greater potential to create jobs. Firms in the 100–999 employee range produced slightly less jobs than their proportion of employment whilst the largest firms, with more than 1000 employees, performed badly. Over 50% of all new jobs were created in firms employing less than a hundred people, the range within which about one third of the workforce was employed. The very largest firms, although employing over a third of the workforce in our sample, generated less than a fifth of new jobs. No one size of firm was responsible for the majority of job creation in the UK. Ganguly (1982a) found an annual average death rate of 9%, and this compares reasonably with the 7% for the present sample, with the former the better figure. The findings in this paper suggest that all sizes of firms make a contribution to employment creation in the UK. Any policy to encourge small firms should focus on their overall contribution to the health of the economy, and not just on job creation.