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Small Business Economics

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29-08-2020

The start-up gap and jobs

Authors: Shyngys Karimov, Jozef Konings

Published in: Small Business Economics | Issue 4/2021

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Abstract

The present paper uses quarterly data from the social security registry covering the full population of Belgian firms to analyze how the secular decline in the firm entry rate affects aggregate employment. To this end, we disentangle the entry margin into two channels: the overall employment of new firms (the start-up employment) and the share of start-up employment by sector (the sectoral composition of start-ups). We find that the decline in start-up employment slowed down the growth rate of aggregate employment by 26% over the 2009Q2–2017Q1 period by shifting the age distribution of firms toward older firms. The sectoral composition of start-ups accelerated the decline in the manufacturing sector and prevented the distribution sector from a potential decline, while leaving the aggregate employment unchanged.

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Calvino and Criscuolo (2019) document declining business dynamism for major OECD economies and highlight that it is more pronounced in digital intensive sectors.

According to the estimate of the National Bank of Belgium, employees registered with the NSSO account for 85% of all paid employment in Belgium.

The time span of the data includes the revision of the NACE codes in the first quarter of 2008. While the re-classification of the sectors during the 2007Q4–2008Q1 transition may cause some distortions, for the purposes of this article it is not significant because we focus on the period after 2008.

There are firms that disappear from the data and reappear after some time. After a discussion with the NSSO representative, we conclude that these instances correspond to firms with zero employment and do not constitute firm exit.

Since we have to track each firm for at least 5 years to infer its age, we are able to distinguish between young (ages 1 to 5) and mature (ages 6+) firms starting from 2008Q1 and onwards.

While there are some discontinuities in the aggregate employment during the 2007Q4–2008Q1 transition, they do not affect the trends significantly.

In Appendix, subsection A1, we further decompose services by knowledge intensity to understand the rise of services and its heterogeneity.

We use the period after 2010 to compute the sector’s age-specific survival and conditional growth rates because the period before that corresponds to the financial crisis with significant fluctuations.

This is a rough estimate obtained by dividing the total number of lost jobs due to the declining start-up employment (19,000 jobs) by the total number of lost start-ups (8800 start-ups). Since the average size of a start-up upon entry is 1, therefore 8800 start-ups is equivalent to 8800 jobs.

According to the National Bank of Belgium, the GDP growth of Belgium during the 2012–2013 period was near zero and even negative in the first quarter of 2013.

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Title: The start-up gap and jobs
Authors: Shyngys Karimov
Jozef Konings
Publication date: 29-08-2020
Publisher: Springer US
Published in: Small Business Economics / Issue 4/2021
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-020-00395-z

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