Business Dynamics and Productivity This publication focuses on business dynamics across eight countries (Belgium, Brazil, Canada, Costa Rica, Japan, New Zealand, Norway, United Kingdom) and over time, building upon the evidence collected in the framework of the OECD DynEmp project for 22 countries. It provides new evidence on firms’ heterogeneous responses to shocks (notably the recent financial crisis) in order to evaluate how policies and framework Business Dynamics conditions across different firms and countries can foster both employment and productivity growth. and Productivity B u s in e s s D y n a m ic s a n d P r o d u c Consult this publication on line at http://dx.doi.org/10.1787/9789264269231-en. tiv it This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. y Visit www.oecd-ilibrary.org for more information. isBn 978-92-64-26922-4 9HSTCQE*cgjcce+ 92 2017 01 1 P Business Dynamics and Productivity This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document, as well as any [statistical] data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2017), Business Dynamics and Productivity, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264269231-en ISBN 978-92-64-26922-4 (print) ISBN 978-92-64-26923-1 (PDF) ISBN 978-92-64-26997-2 (epub) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: © bluebay/Shutterstock.com. Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of the source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. PREFACE Preface A dynamic business environment plays an important role not only as a key driver of job creation but also as an engine of productivity growth. A growing body of research highlights significant differences in business dynamics across countries and over time, in particular over the different phases of the business cycle. However, our understanding of these differences remains patchy, and this makes it more difficult for policy makers to implement economically efficient policies. This collection of studies aims to fill this gap by providing new evidence on business dynamics from a cross-section of countries of different sizes, with different market and structural characteristics, and which are at different stages in their development process. The studies focus in particular on Belgium, Brazil, Canada, Costa Rica, Japan, New Zealand, Norway and the United Kingdom, shedding new light on how firms which differ in terms of their size, age, sector and other characteristics, respond to economic shocks, with a particular focus on differences in their responses to the last decade’s global financial crisis. Evidence collected in this volume also aims to provide a better understanding of the contribution of business dynamics to aggregate productivity and of the effects of economic policies across different firms and countries. Thus, it will help policy makers design better policies, harnessing productivity and employment growth in support of more inclusive and sustainable societies. The work presented here is part of a broader effort by the OECD to provide evidence on business dynamics and productivity from firm-level data, drawing on a variety of methodologies. In particular, the OECD is leading two projects – DynEmp and MultiProd – that use countries’ representative firm-level data to conduct comparable cross-country analysis on employment dynamics and productivity. This study draws on the insights of this research, providing not only cross-country comparability but also the opportunity to dig deeper than aggregate or sectoral averages to uncover differences across firms, describe productivity and employment distributions, and analyse heterogeneous impacts of policies. At the leading edge of these new approaches, the OECD has a valuable role to play in helping to strengthen the empirical analysis in support of better policies. The pages which follow are an important step in that direction, which leverages the expertise of the DynEmp and MultiProd network members. This collaborative and forward- looking work will help policymakers design better policies by harnessing productivity and employment growth in support of more inclusive and sustainable societies. Angel Gurría OECD Secretary-General BUSINESS DYNAMICS AND PRODUCTIVITY © OECD 2017 3 FOREWORD Foreword T his volume is part of a wider effort led by the OECD Directorate for Science, Technology and Innovation to provide new cross-country evidence on employment dynamics and productivity based on firm-level micro-data. In this context, the OECD is co-ordinating two distributed micro-data projects – DynEmp and MultiProd – that rely on micro-aggregated data from a broad cross-section of countries for comparable cross-country analyses on employment dynamics and productivity, respectively (see www.oecd.org/sti/DynEmp.htm and www.oecd.org/sti/ind/MultiProd.htm). The innovative methodology applied by the OECD allows for the collection and analysis of harmonised data based on confidential administrative sources or official representative surveys. Both DynEmp and MultiProd rely on the active participation of a network of national experts who have expertise in these different areas and who have access to the relevant micro-data sources in their respective countries. The projects allow for the assessment of the effects of national policies and framework conditions on different firm-level outcomes. On the one hand, the cross-country dimension of the project overcomes one of the great shortcomings of studies which rely on data from a single country, namely the relatively limited variation in policy settings. On the other hand, unlike cross-country studies that concentrate on outcomes at higher levels of aggregation, the methodology allows for the analysis of the heterogeneous responses of different economic actors to the very same policy settings. The OECD has a particularly important role to play in helping to bridge this gap. The distributed micro-data approach offers a unique chance for building and exploiting longitudinal databases, and for going beyond cross-sectional cross-country comparisons or aggregate industry-level analysis. In this framework, DynEmp and MultiProd allow for the generation of data suitable for analysing specific economic policy questions at different levels of aggregation (sectoral, geographical, or based on the size and age of firms). However, DynEmp and MultiProd, by their very nature and to ensure comparability, have to combine the availability of data in the majority of the participating countries with a shared interest in the policy questions under investigation. For this reason, this book builds upon the great expertise of the DynEmp network’s members in order to push further the boundaries of the DynEmp project, focusing on three different directions: data needs, methodology, and – most importantly – policy questions. BUSINESS DYNAMICS AND PRODUCTIVITY © OECD 2017 5 ACKNOWLEDGEMENTS Acknowledgements T his volume was edited by Chiara Criscuolo from the OECD Directorate for Science, Technology and Innovation, who also authored Chapter 1. Danilo Coelho, Carlos Henrique Corseuil, and Miguel Nathan Foguel from the Instituto de Pesquisa Econômica Aplicada (IPEA) wrote Chapter 2, with research assistance from Luciana Costa and Katcha Poloponsky. Michel Dumont, Chantal Kegels, Hilde Spinnewyn and Dirk Verwerft from the Belgian Federal Planning Bureau are the authors of Chapter 3. The authors of Chapter 4 are Michael Anyadike-Danes and Mark Hart from the Enterprise Research Centre and Aston Business School. Chapter 5 was prepared by Richard Fabling, independent researcher, and David Maré from the Motu Economic and Public Policy Research Centre in New Zealand. Chapter 6 was authored by Catalina Sandoval, Francisco Monge, Tayutic Mena, Arlina Gómez and David Mora from the Ministry of Foreign Trade of Costa Rica. Jay Dixon, from the Department of Innovation, Science and Economic Development Canada, authored Chapter 7, which benefitted from extensive comments by Pierre Therrien from the same Department. Chapter 8 was authored by Arvid Raknerund and Diana-Cristina Iancu from Statistics Norway, and benefited from comments and suggestions from Thomas von Brasch, Chiara Criscuolo, Carl Gjersem, Erik Storm and Nora Kirsten Sundvall. Finally, Chapter 9 was written by Kenta Ikeuchi, from the Research Institute of Economy, Trade and Industry (RIETI) in Japan. The book benefited from the inputs of the OECD Secretariat, with special thanks going to Flavio Calvino for his support throughout the production of the book. Isabelle Desnoyers- James, Angela Gosmann, Fabienne Barrey and Elisaveta Gekova for provided statistical and editorial support. The DynEmp and MultiProd projects would have not been possible without the support from the Committee for Industry, Innovation and Entrepreneurship (CIIE) and the Working Party of Industry Analysis (WPIA), and the generous contributions from a network of researchers and policy makers from around the globe. The table below lists them and their institutions by country. 6 BUSINESS DYNAMICS AND PRODUCTIVITY © OECD 2017 ACKNOWLEDGEMENTS Country National representative(s) Institution(s) Australia Antonio Balaguer, Diane Braskic, David Hansell Department of Industry, Innovation and Science and Australian Bureau of Statistics Austria Werner Hoelzl, Jürgen Janger, Michael Peneder WIFO Institute (Austrian Institute of Economic Research) Belgium Michel Dumont, Chantal Kegels, Hilde Spinnewyn Federal Planning Bureau Brazil Carlos Henrique Leite Corseuil, Gabriel Lopes de Ulyssea, Instituto de Pesquisa Econômica Aplicada (IPEA) Glaucia Estafânia de Sousa Ferreira, Alexandre Messa Peixoto da Silva, Fernanda De Negri Canada Pierre Therrien, Jay Dixon, Anne-Marie Rollin, John Baldwin, Industry Canada and Statistics Canada Wulong Gu Chile Antonio Martner Sota, Andrés Zahler Ministerio de Economía, Fomento y Turismo China Keiko Ito, Kyosuke Kurita, Yoshihiro Hashiguchi Senshu University, Kwansei Gakuin University, OECD Costa Rica Alonso Alfaro, David Bullon Patton, Arlina Gómez, Tayutic Mena, Central Bank of Costa Rica and Ministry of Foreign Trade Francisco Monge Denmark Dorte Høeg Koch, Morten Skov Poulsen Ministry for Business and Growth Finland Mika Maliranta ETLA and Statistics Finland France DynEmp and MultiProd teams OECD Hungary Adrienn Szep Szollosine, Erzsebet Eperjesi Lindnerne, Gabor Katay, Central Bank of Hungary, Hungarian Central Statistical Office Peter Harasztosi, Mihály Szoboszlai Germany Anke Rink, Natalie Rosenski DESTATIS – Federal Statistical Office of Germany Indonesia Keiko Ito, Kyosuke Kurita Senshu University, Kwansei Gakuin University Italy Stefano Costa Italian National Institute of Statistics (ISTAT) Japan Kyoji Fukao, Kenta Ikeuchi and Keiko Ito Hitotsubashi University, National Institute of Science and Technology Policy and RIETI Luxembourg Leila Peltier – Ben Aoun, Chiara Peroni, Umut Kilinc STATEC Netherlands Michael Polder Statistics Netherlands (Centraal Bureau voor de Statistiek) New Zealand Corey Allan, Lynda Sanderson, Richard Fabling Ministry of Business, Innovation and Employment, independent researcher, Motu Economic and Public Policy Research Trust Norway Arvid Raknerud, Diana-Cristina Iancu Statistics Norway and Ministry of Trade and Industry Portugal Jorge Portugal, Silvia Santos, Ana Gouveia, Luís Guia, Guida Nogueira, Presidencia da Republica, Min. Finanças, Min. Economia Ricardo Alves Spain Valentin Llorente Garcia Spanish Statistical Office Sweden Eva Hagsten, Fredrik Andersson Statistics Sweden Turkey Faik Yücel Günaydın Ministry of Science, Industry and Technology United Kingdom Michael Anyadike-Danes, Richard Prothero, Giovanni Mangiarotti Aston Business School, ONS United States Lucia Foster, Kristin McCue, Javier Miranda, Shawn Klimek Center for Economic Studies, US Census Bureau OECD Giuseppe Berlingieri, Patrick Blanchenay, Sara Calligaris, Flavio Calvino, Alessandra Colecchia, Chiara Criscuolo, Isabelle Desnoyers-James, Peter Gal, Nicholas Johnstone, Carlo Menon, Dirk Pilat, Mariagrazia Squicciarini, Andrew Wyckoff BUSINESS DYNAMICS AND PRODUCTIVITY © OECD 2017 7 TABLE OF CONTENTS Table of contents Executive summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 List of acronyms and abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Chapter 1. Assessing the links between business dynamics and policy settings . . . . 21 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Going beyond the average firm paradigm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Organic versus non-organic growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 The impact of the crisis on employment stocks, flows and business dynamics . . 28 The role of sectors, ownership and trade status for job creation and destruction and business dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Business dynamics, reallocation and productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Chapter 2. Employment growth of establishments in the Brazilian economy: Results by age and size groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 The plant employment dynamics over their life cycle . . . . . . . . . . . . . . . . . . . . . . . . 39 The “missing middle” and establishment size distribution in Brazil . . . . . . . . . . . . 46 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Annex 2.A1. Complementary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Annex 2.A2. Methodological details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Chapter 3. The role of mergers and acquisitions in employment dynamics in Belgium . 59 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Data section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Organic growth versus growth through acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Employment effects of M&As. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 The probability of acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Chapter 4. Firm and job dynamics in the United Kingdom before, during and after the global financial crisis: Getting in under the hood . . . . . . . . . . . . . . . . . . . . . . . 87 Context, motivation and approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Data sources and construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 BUSINESS DYNAMICS AND PRODUCTIVITY © OECD 2017 9