SERVICIO DE ESTUDIOS DEL BANCO DE ESPAÑA DEPARTAMENTO DE COYUNTURA Y PREVISIÓN ECONÓMICA Employment Generation by Small Producers in Spain Paloma López,

Presentación del tema: "SERVICIO DE ESTUDIOS DEL BANCO DE ESPAÑA DEPARTAMENTO DE COYUNTURA Y PREVISIÓN ECONÓMICA Employment Generation by Small Producers in Spain Paloma López,"— Transcripción de la presentación:

1 SERVICIO DE ESTUDIOS DEL BANCO DE ESPAÑA DEPARTAMENTO DE COYUNTURA Y PREVISIÓN ECONÓMICA Employment Generation by Small Producers in Spain Paloma López, Sergio Puente y Ángel Luis Gómez Simposio de Análisis Económico 11-13 de diciembre de 2008, Valladolid

2 Departamento de Coyuntura y Previsión Económica 2 Esquema de la charla  Motivation  Database  Small firms’ contribution to employment  Is the size distribution shifting?  Some preliminary conclusions

3 Departamento de Coyuntura y Previsión Económica 3 Motivation The importance of small firms  During the 70s there was a surge of interest in the employment creation of small firms. Why? −The weight of small firms in total employment was increasing This was happening in developed countries with very different characteristics (in terms of sector composition, productive structure or institutions) It was the reversion of a very long trend towards the concentration of production in large units It was a very robust fact (to the cycle, the sector, the production unit) −David Birch (1979) used a longitudinal database for the first time to discover that small firms created most of the net new jobs in USA His methodology has been contested (Davis et al 1996) But there is consensus about the fact that small firms create and destroy more jobs than large firms.

4 Departamento de Coyuntura y Previsión Económica 4 Motivation The importance of small firms (II)  Both lines of research are complementary −The firm-level analysis of job creation helps understanding what might be causing the shift in the size distribution −The analysis of the shift in the size distribution helps understanding whether small firms are having any impact on aggregate employment  And have very important policy implications −The large job creation rates of small firms is behind the specific policies in many countries in favour of the SMEs −The increasing concentration of employment and production in smaller and smaller units puts in the frontline the issue of the production and working conditions in SMEs

5 Departamento de Coyuntura y Previsión Económica 5 Motivation What do we know about these issues in Spain?  Despite its obvious policy interest we do not know much…due to a lack of appropriate firm-level data −Dolado & Gómez (1995) + Dolado, García & Gómez (1997)--CBA –Ruano (1997) + Calvo (2002)--ESEE –Gomez et al (2004)—Amadeus  We use a newly constructed firm-level database to shed some light on the employment generation of small producers in Spain −We compute annual net job creation rates of firms in different size classes and sectors –We analyse whether that employment creation is having any impact at all on the firm size distribution –In the process, we look at the convergence of new cohorts of firms to the average sector size

6 Departamento de Coyuntura y Previsión Económica 6 Esquema de la charla  Motivation  Database  Small firms’ contribution to employment  Is the size distribution shifting?  Some preliminary conclusions

7 Departamento de Coyuntura y Previsión Económica The database (I)  We have information of employment, sector of activity and status for about 100,000-300,000 Limited Liability Companies and Corporations every year between 1996 and 2003  The information comes from two sources of data: –The “Central de Balances-Registros Mercantiles” database Provides information every year on all active companies (not self- employed) with coherent data from the provincial firm registries Submission of employment data to the firm registries is not compulsory. Hence, there are numerous missing and we cannot use the presence/absence of data to deduct the date of entry/exit of firms – The “Directorio Central de Empresas”, managed by INE Provides information on employment and sector of all Limited Liability Firms and Corporations that entered or exited between 1996 and 2003

8 Departamento de Coyuntura y Previsión Económica The Database (II) Details  We “only” have data on Limited Liability Firms and Corporations (not self-employed~60% of all firms)  We have ALL entries and exits of LLC and Corporations in the period of analysis, as well as their employment and sector at entry and/or exit  DIRCE records an entry when a new fiscal identification number is given…could be the result of a restructuring process of established firms –a “false” entry. To be kept in mind.  We have firms operating in all sectors of the market economy (but the financial one)  There are no employment thresholds  We cannot assume that the sample of firms with data every year is representative. We compute annual sampling weights according to the employment segment, 2-digit sector of activity and status (entry, exit or continuing) of the firm.

9 Departamento de Coyuntura y Previsión Económica A comparison between annual employment creation rates: DIRCE versus our database

10 Departamento de Coyuntura y Previsión Económica 10 Esquema de la charla  Motivation  Database  Small firms’ contribution to employment  Is the size distribution shifting?  Some preliminary conclusions

11 Departamento de Coyuntura y Previsión Económica Small firms create a disproportionate share of jobs  Firms are classified in size classes according to their period average employment  Small firms have created about half of all net jobs in the period  But employ only a third of all workers  Exactly the contrary happens with the rest of the size classes Job creation and employment share of small firms: 1996-2003

12 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment In rates and absolute numbers  The annual net job creation rate of firms with less than 20 employees is double that of firms with more than 20 employees  Both small established and new firms contribute to that job creation record

13 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment Sector differences (I)  Observed regularities do not reflect solely a shift of activity to sectors where average firm size is smaller  Within each of the main economic sectors small firms create a disproportionate share of net new jobs  The disproportion is largest in the manufacturing sector Job creation and employment share of small firms

14 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment Sector differences (II)  Small firms’ annual job creation rate in services and construction doubles that in manufacturing  But small manufacturing firms´ job creation rate is 10 times that of large manufacturing firms

15 Departamento de Coyuntura y Previsión Económica  The reason why small firms create proportionally more jobs than large firms varies across sectors  In manufacturing: Both small established and net new firms outperform their larger counterparts  In services: Small established firms do not perform better than their larger counterparts. But very large job creation due to small firm rotation compensates Explaining the difference between the JCR of small and large firms The contribution of small firms to employment Sector differences (III)

16 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment Sector differences (IV)  There are very different industries, technology speaking, within each sector…even so, observed sector differences are robust Explaining the difference between the JCR of small and large firms

17 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment Why do small firms perform better?  Why do (very) small firms create proportionally more employment than large firms?? –Life-cycle theory---firms enter small and grow fast to converge to the minimum efficient scale of the sector –Greater dynamism, entrepreneurship…within the small firm size class. This is coherent with a reduction of the optimal firm size.

18 Departamento de Coyuntura y Previsión Económica Convergence to average sector size, average different cohorts The contribution of small firms to employment Why do small firms perform better? Employment gains, relative to initial employment, average different cohorts

19 Departamento de Coyuntura y Previsión Económica The contribution of small firms to employment Why do small firms perform better?  Post-entry growth is slow…above all in manufacturing  Age is important but not all the story…there is something in the “smallness”  Coherent with the increasing importance that small firms are having in terms of aggregate employment and activity in other developed countries  What is the implication? Has the firm size distribution shifted over time and across sectors in Spain.

20 Departamento de Coyuntura y Previsión Económica 20 Esquema de la charla  Motivation  Database  Small firms’ contribution to employment  Is the size distribution shifting?  Some preliminary conclusions

21 Departamento de Coyuntura y Previsión Económica Cumulative distribution function of the log of firm size Firm size distribution Has it shifted? (I)

22 Departamento de Coyuntura y Previsión Económica  The distribution has shifted to (yet) smaller units  To our knowledge we are the first ones in analysing this phenomenon…this is good and bad…we do not know when it started  But given that in the early 90s the GDP per capita was still 2/3 that of the average EU, we suspect that the degree of sophistication required for scale economies to become less important was achieved later in Spain  Why has the shift taken place? Several possible factors in the literature –Greater economic uncertainty and more demand for specialised products— flexible production –Increasing competition from low-cost countries– outsourcing & offsh. –Cost reduction of computers and widespread use of ICT– reduction in minimum efficient scale of production and required entry scale Firm size distribution Has it shifted? (II)

23 Departamento de Coyuntura y Previsión Económica  Which factors are more important in the Spanish case?  One approach to start answering the question is to study whether the shift has taken place in industries of different technology intensity –In manufacturingmanufacturing –In servicesservices –In other sectors (construction, utilities and mining)other Firm size distribution Has it shifted? (III)

24 Departamento de Coyuntura y Previsión Económica 24 Esquema de la charla  Motivation  Database  Small firms’ contribution to employment  Is the size distribution shifting?  Some preliminary conclusions

25 Departamento de Coyuntura y Previsión Económica  Manufacturing: –Both small established and new firms create proportionally more employment than their larger counterparts –The result has been a continuous shift in firm size distribution towards smaller units The whole distribution has shifted Both in technology intensive industries and some non-ICT industries (excluding car production) –The optimal firms size is decreasing both for new entries and mature firms in the sector –New technologies? New markets? New financing tools for small technology firms? And a lot of competition and outsourcing Some preliminary conclusions (I)

26 Departamento de Coyuntura y Previsión Económica  Services: –Small established firms do not perform better than large ones –But employment creation due to small firm rotation is very large –The result has been a shift in firm size distribution towards smaller units in all industries −Wave of new small firms over the period, displacing larger ones −Not enough years to know whether it is a permanent phenomenon  Construction (90% of employment in ”Non-ICT others”) –Both small established and new firms create proportionally more employment than their larger counterparts –The size distribution has not shifted but become more disperse −New small firms are displacing medium-sized firms −The activity in this sector is becoming bipolar Some preliminary conclusions (II)

27 Gracias por su atención Paloma López, Sergio Puente y Ángel Luis Gómez DEPARTAMENTO DE COYUNTURA Y PREVISIÓN ECONÓMICA

28 Departamento de Coyuntura y Previsión Económica Manufacturing industries according to technology intensity volver

29 Departamento de Coyuntura y Previsión Económica Service industries according to tecnology intensity volver

30 Departamento de Coyuntura y Previsión Económica Other less technology intensive industries volver

31 Departamento de Coyuntura y Previsión Económica 31 Peso de las pequeñas empresas sobre el empleo total, otros países volver

32 Departamento de Coyuntura y Previsión Económica Back ups −Proceso de construcción de datos −Creación de empleo en números absolutos, todos los tamaños −Diferencias en las tasas de creación de empleo pequeñas-grandes, todos los años −Tasas de creación de empleo de empresas establecidas manufactureras de al menos tres años −Tasas de creación de empleo totales y componentes por sectores para empresas de menos y de más de 20 empleados −Creación de empleo por sectores y tamaños en números absolutos −Diferencias en las tasas de creación de empleo pequeñas-grandes por sectores −Pro-memoria: Pesos y tamaño medio de empresas en los principales sectores −Pro-memoria: Peso de grandes empresas y porcentaje de empleo en industrias tecnológicas −Industrias de diferente intensidad tecnológica −Peso de las pequeñas empresas sobre la creación de empleo y el empleo total en industrias de diferente intensidad tecnológica −Diferencias en las tasas de creación de empleo pequeñas-grandes en industrias de diferente intensidad tecnológica, empresas de menos y más de 20 empleados −Diferencias en las tasas de creación de empleo pequeñas-grandes en industrias productoras y utilizadoras de TIC −Empleo de una nueva cohorte años después de la entrada, como porcentaje del total −Empresas activas pertenecientes a diferentes cohortes años después de la entrada −Convergencia de nuevas empresas al tamaño medio, diferentes industrias tecnológicas −Empresas activas después de la entrada con y sin dato de empleo

33 Departamento de Coyuntura y Previsión Económica Proceso de construcción de datos

34 Departamento de Coyuntura y Previsión Económica Creación de empleo en números absolutos, todos los tamaños

35 Departamento de Coyuntura y Previsión Económica Las regularidades son robustas a los años Diferencias en la creación de empleo entre empresas de menos y más de 20 empleados, todos los años

36 Departamento de Coyuntura y Previsión Económica Y a la definición de empresas establecidas Tasa de creación de empleo anual de empresas establecidas con al menos tres años

37 Departamento de Coyuntura y Previsión Económica Tasas de creación de empleo sectorial, empresas de menos y más de 20 empleados

38 Departamento de Coyuntura y Previsión Económica Creación de empleo sectorial en números absolutos, empresas de menos y más de 20 empleados

39 Departamento de Coyuntura y Previsión Económica Diferencias en tasas de creación de empleo, otros tamaños Empresas con menos y más de 20 empleados

40 Departamento de Coyuntura y Previsión Económica Pro-memoria  Porcentaje de empresas (SL y SA), media 1999-2003  Peso sobre el empleo total y empleo medio, media 1996-2003

41 Departamento de Coyuntura y Previsión Económica Pro-memoria  Porcentaje del empleo correspondiente a empresas con más de 250 empleados en diferentes industrias y porcentaje de la industria sobre el empleo del sector

42 Departamento de Coyuntura y Previsión Económica Industrias con diferente intensidad tecnológica Principales sectores 2-dígitos--Manufacturing  ICT-producing -Office, accounting and computing machinery -Semiconductors and other electronic components -Communications and broadcasting equipment -Radio and TV receivers -Medican equipment  ICT-using -Wearing apparel -Electrical and optical machinery -Ships, aircrafts, transport equipment  Less-intensive ICT -Food, beverages and tobaco -Textiles, leather and footwear -Pulp and paper products -Chemicals -Motor vehicles

43 Departamento de Coyuntura y Previsión Económica Industrias con diferente intensidad tecnológica Principales sectores 2-dígitos--Services  ICT-producing -Post and telecommunications -Computer and related services  ICT-using -Retail and wholesale trade -Renting of machinery -Research and development -Proffesional business services  Less-intensive ICT -Rapairs -Hotels and restaurants -Transport and storage -Real stat activities -Other business services

44 Departamento de Coyuntura y Previsión Económica Contribución a la creación de empleo y al empleo total por intensidad tecnológica, empresas de menos de 20 empleados

45 Departamento de Coyuntura y Previsión Económica Creación de empleo por intensidad tecnológica, empresas de menos y más de 20 empleados Empresas con menos y más de 20 empleados

46 Departamento de Coyuntura y Previsión Económica Creación de empleo por intensidad tecnológica, empresas de menos y más de 20 empleados

47 Departamento de Coyuntura y Previsión Económica Evolución del empleo de las nuevas empresas años después de su entrada Porcentaje sobre el empleo total

48 Departamento de Coyuntura y Previsión Económica Porcentaje de empresas que siguen activas al cabo de los años, diferentes cohortes

49 Departamento de Coyuntura y Previsión Económica Convergencia de nuevas empresas en industrias de diferente intensidad tecnológica

50 Departamento de Coyuntura y Previsión Económica Ejemplo de empresas de una cohorte que se van cayendo años después de la entrada