New fast-growing companies create jobs

Abstract

This study contrasts the formation and performance of new small firms in two different regions of the U.K. It compares the performance of 2600 new firms which started up between 1980 and 1982 in a peripheral region (Scotland), with the 20,000 which started in the national capital's region of the U.K. (the South East). Within each region, two contrasting cohorts were identified, the first, the flyers, on the basis of high subsequent performance up to 1987, and the second, the sinkers, on the basis of poor performance. It is the high flying firms which create the jobs. In both regions, the difference between flyers and sinkers in terms of job creation was considerable. While the Scottish flyers created on average 160 jobs per firm, the South East flyers created an astonishing 348. In the South East, while the flyers made up only 18 per cent of all of firms, they nevertheless accounted for 92 per cent of the jobs created, and in the South East, 60 per cent of all jobs created by the flyers were in finance. Thus it is a modest (but not tiny) proportion of all firms which make the most significant contribution to job generation and growth. The study showed how closely the regional economies of the U.K. are linked. Economic activity is sectorally concentrated, and the active sectors produce significant numbers of all types of performance, both winners and losers. The distribution of the sinkers was very similar to that of the flyers. Both success and bare survival are easier to achieve in the U.K.'s national capital region. Holding company activity was important in both regions. In the South East, 97 per cent of all turnover was contributed by the flyers, and only 1 per cent by the sinkers, and within the flyers, the overwhelming contribution came predictably from the finance sector. Turnover per employee was significantly greater in the South East, where firms were at least twice the size of Scottish firms. The performance of the high technology businesses was poor, with a very low proportion of flyers in both regions. The poor performance of the peripheral region's business services is unhealthy for a region striving to develop a balanced economic infrastructure.