High performing firms and job creation: a longitudinal analysis (1998-2013) ERC Insight Paper

ERC Insight Paper

Associated Themes
  • Business Growth

The OECD High-Growth Firm (HGF) measure was a pragmatic solution to a practical problem. It was designed to assist in identifying the small group of firms which contributed disproportionately to job creation. This statistic could be used to inform national policy and to make comparisons across countries, since it could be readily replicated using business register data. The decade since the measure was first published has seen increasing dissatisfaction amongst the academics and policymakers seeking to make use of it. There are two important criticisms. First, it focuses attention on relatively short ‘bursts’ of growth rendering invisible the reality of growth for the majority of businesses, and second, it does not in fact capture some important members of its target group the ‘relatively small proportion of firms that contribute disproportionately to job creation’.
We present a new analysis of job creation in the UK, using data on a cohort of start-ups born in 1998 to identify three different groups of high performing firms. Of these three groups we find that HGFs as defined by the OCED do not create the most jobs, in fact they grow more slowly and have a lower survival rate than the comparators. Notably, though, most of the observed growth in all three groups takes place within the first five years after start-up.