How Dynamic is the Private Sector? Job Creation and Insights from Workplace-Level Data

Abstract

Private sector employment rose by over a million in the past three years. Commentators often interpret this number – which is a net figure – as ‘job creation’. But how many jobs really are created each year, and conversely how many are lost? How has this changed with the downturn and what does it imply for the recovery?

This article uses findings from business and workplace-level data to map i) job creation and destruction over recent years, ii) its components in accounting terms, iii) the relative contribution by firms of different size and age, and iv) the reallocation of resource between firms and to workplaces within firms. There are four main points:

1. a) Job churn far outweighs net change. Before the downturn, an average of 4.0 million jobs were created each year and a slightly smaller number lost (3.7m), resulting in a net increase of about 300,000 per year.

2. b) Most job creation (over 70 per cent) is within existing firms; but within that, over a third comes from the creation of new workplaces set up within those firms.

3. c) The net reduction in jobs in 2008–11 was not, in contrast to earlier recessions, due to higher rates of job loss; instead it reflects a sustained period of lower job creation in new workplaces, especially in SMEs (figure 1). This is consistent with ongoing credit constraints hitting SMEs particularly hard, as discussed in Armstrong et al. (2013), or could simply be in line with lack of confidence to invest at this time.

4. d) Looking at the years 2008–11 individually, the downturn begins with reduced levels of entry, followed by a peak of job destruction in 2009 in line with reduced aggregate demand, and then a continuation of low levels of entry of new SMEs, and lower levels of destruction too (figure 2).