Cross-Country Evidence on Start-Up Dynamics
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THE FUTURE OF PRODUCTIVITY: MAIN BACKGROUND PAPERS CROSS-COUNTRY EVIDENCE ON START-UP DYNAMICS By Flavino Calvino, Chiara Criscuolo and Carlo Menon Please cite this paper as: Calvino, F., C. Criscuolo and C. Menon (2015), “Cross-country evidence on start-up dynamics”, OECD Science, Technology and Industry Working Papers, 2015/06, OECD Publishing, Paris. http://dx.doi.org/10.1787/5jrxtkb9mxtb-en OECD Science, Technology and Industry Working Papers 2015/06 Cross-country evidence on start-up dynamics Flavio Calvino, Chiara Criscuolo, Carlo Menon JEL Classification: D22, L11, L26 OECD SCIENCE, TECHNOLOGY AND INDUSTRY WORKING PAPERS OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the authors. Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works. Comments on Working Papers are welcomed, and may be sent to OECD Directorate for Science, Technology and Innovation, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France; e-mail: [email protected]. The release of this working paper has been authorised by Andrew Wyckoff, OECD Director for Science, Technology and Innovation. This paper has been authored by Flavio Calvino (Scuola Superiore Sant’Anna, Pisa; and Paris School of Economics – University Paris 1), Chiara Criscuolo (OECD Directorate for Science, Technology and Innovation) and Carlo Menon (OECD Directorate for Science, Technology and Innovation; and Spatial Economic Research Centre, London School of Economics). A version of this paper has been reviewed by Dan Andrews (OECD Economics Department). © OECD/OCDE 2015 Applications for permission to reproduce or translate all or part of this material should be made to: OECD Publications, 2 rue André-Pascal, 75775 Paris, Cedex 16, France; e-mail: [email protected] Cross-country Evidence on Start-up Dynamics CROSS COUNTRY EVIDENCE ON START-UP DYNAMICS Flavio Calvino1, Chiara Criscuolo,2 and Carlo Menon3 OECD Paris ABSTRACT The report provides a description of start-up dynamics exploiting the richness of the recently collected DynEmp v.2 database. The contribution of new firms in terms of new jobs to the existing workforce can be expressed as a combination of four different elements: the start-up rate; the average size of firms at point of entry; the survival rate; and the average growth rate of survivors. This decomposition shows that the four elements interplay in very different ways, even across economies with similar aggregate start-up contributions. The most homogenous component across countries is the survival rate, which is equal to just above 60% after three years from entry, to about 50% after five years, and to just over 40% after seven years. Furthermore, in most countries the probability of exiting is highest at the age of two, and decreases (linearly) beyond that age. When looking at employment growth of surviving businesses, it is found that the large majority of surviving micro start-ups do not grow; however, the tiny proportion of small start-ups which do grow creates a disproportionate amount of jobs. Keywords: Start-ups; Employment dynamics; Entrepreneurship; Firm demographics. JEL Classifications: L11; L26; D22. OECD SCIENCE, TECHNOLOGY AND INDUSTRY WORKING PAPERS 2 Cross-country Evidence on Start-up Dynamics TABLE OF CONTENTS ABSTRACT .................................................................................................................................. 2 1. Introduction ........................................................................................................................... 6 2. The DynEmp v.2 database ..................................................................................................... 7 3. Start-ups and employment: descriptive evidence .................................................................. 9 3.1. The components of start-up contribution to employment creation ............................... 11 3.2. Start-up ratios ................................................................................................................ 18 3.3. Size at entry ................................................................................................................... 21 3.4. Survival share and probability of exit ........................................................................... 23 3.5. Post-entry Growth ......................................................................................................... 27 3.6. The “crisis” cohort ........................................................................................................ 31 4. Conclusions and next steps .................................................................................................. 36 REFERENCES ............................................................................................................................ 39 ANNEX A: TECHNICAL APPENDIX ...................................................................................... 42 Growth decomposition ............................................................................................................. 42 ANNEX B: ADDITIONAL TABLES AND FIGURES ............................................................. 44 Tables Table 1. Contributors to the DynEmp v.2 data collection ................................................... 5 Table 2. Temporal coverage DynEmp v.2 over time by country ........................................ 9 Figures Figure 1. Survival share and job creation by micro (0-9) entrants over a five year period 10 Figure 2. Net job creation by surviving entrants over total employment ........................... 12 Figure 3. The components of start-up contribution to employment creation ...................... 13 Figure 4. Growth decomposition ........................................................................................ 15 Figure 5. Growth decomposition: country comparison ...................................................... 17 Figure 6. The role of start-ups by country over time .......................................................... 19 Figure 7. Start-up rates by countries keeping constant the industry structure .................... 21 Figure 8. Surviving entrants: differences in average size at entry by 2-digit sector ........... 22 Figure 9. Size at entry by countries with keeping industry structure constant ................... 23 Figure 10. Probability of exit at different ages ................................................................. 25 Figure 11. Focus on micro-entrants: stable vs. growing vs. exiting ................................. 29 Figure 12. Focus on surviving units by age class ............................................................. 30 Figure 13. Final over initial employment after 3, 5, and 7 years ...................................... 31 Figure 14. Growth decomposition by cohort 2001; 2004, 2007 ....................................... 33 Figure 15. Average size at entry and exit rate of firms less than 3 year old ..................... 34 3 OECD SCIENCE, TECHNOLOGY AND INDUSTRY WORKING PAPERS Cross-country Evidence on Start-up Dynamics Acknowledgements The DynEmp (Dynamics of Employment) project would not have progressed this far without the contribution of Javier Miranda and Mariagrazia Squicciarini – who have provided invaluable comments and have been instrumental in the creation of the DynEmp network and the co-ordination of the Working Party of Industry Analysis (WPIA) of the OECD – and without the active participation of national delegates from WPIA and other members of the DynEmp network. Their support has been essential for allowing access to national business registers and for improving the process and the methodology of the data collection through comments, suggestions, and technical advice. The OECD Secretariat would like to sincerely thank all the contributors listed in Table 1 for making the DynEmp project possible, while retaining all responsibilities for errors and omissions in this document. The authors are also extremely grateful to Nick Johnstone, Dirk Pilat, and Andrew Wyckoff for useful discussions, and to Isabelle Desnoyers-James for excellent statistical assistance. OECD SCIENCE, TECHNOLOGY AND INDUSTRY WORKING PAPERS 4 Cross-country Evidence on Start-up Dynamics Table 1. Contributors to the DynEmp v.2 data collection Countries included in the dataset used for this report Country National representative Instituition Austria Werner Hoelzl WIFO Institute (Austrian Institute of Economic Research) Belgium Michel Dumont, Chantal Kegels, Hilde Federal Planning Bureau Spinnewyn Brazil Carlos Henrique Leite Corseuil, Gabriel IPEA - Instituto de Pesquisa Econômica Lopes de Ulyssea Aplicada Costa Rica David Bullon Patton Ministry for Foreign Trade Denmark Dorte Høeg Koch Ministry for Business and Growth Finland Mika Maliranta The Research Institute of the Finnish Economy (ETLA) and Statistics Finland Hungary Adrienn Szep Szollosine, Erzsebet Central Bank of Hungary, Hungarian Central Eperjesi Lindnerne, Gabor Katay, Peter Statistical Office Harasztosi Italy Stefano Costa Italian National Institute of Statistics (ISTAT) Luxembourg Leila Peltier – Ben Aoun, Anne Dubrocard, STATEC Michael Prombo Netherlands Michael Polder Statistics Netherlands (Centraal Bureau voor de Statistiek) New Zealand Lynda Sanderson, Richard Fabling New Zealand Treasury,