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Saturday, June 09, 2018

Ireland has very low employer firm startup rate- UK is 4 times bigger

Ireland has the second-worst employer startup rate among mainly rich 29-member countries of the Organisation for Economic Co-operation and Development (OECD). Belgium has the worst rating while the United Kingdom is the best with a rate that is almost quadruple Ireland’s.

Ireland’s employer firm birth rate as a percentage of active employer firms was 4.1% in 2015 compared with Belgium’s 3.5% rate and Britain’s impressive 15.7% rate of birth. Ireland’s rate was at 3.7% in 2014. The death rates for 2014 and 2015 were 3.7% and 3% — meaning that the net growth rate of employer firms was stagnant in 2014 and very low in 2015. See table below

While the term ‘startup’ has become synonymous with the tech industry, we use it here as interchangeable with enterprise births, which is used by the OECD and Eurostat — the statistics office of the EU — in respect of the area of business statistics known as Business Demography.

The focus on employer firms with at least 1 employee at birth is important in terms of potential economic impact compared with a 1-person operation which may never grow even though many surviving employer firms also don't grow. Most new employer enterprises in OECD economies are created with between one and four employees. The average number of persons employed in employer enterprise births is typically higher in industry than in services, reflecting economies of scale.

Knowledge-intensive high technology services accounted for 3% of EU employment of 227m in 2017 and while the overall level expanded by 1.4%, tech services employment grew by 3%.

In Ireland, both direct ICT services employment (the majority of staff are likely working in administration, sales, and marketing) and overall employment expanded by 5% and 3% respectively in 2017. The tech sector employs about 4% of the total US workforce

An Oxford Martin School study published in 2014 showed that less than 0.5% of US jobs had been created by new technology industries in the 21st century, ushering in an era of wealth rather than job creation.  Industrial Renewal in the 21st century: evidence from US cities, published in Regional Studies, was written by Dr Carl Benedikt Frey and Thor Berger as part of the Oxford Martin Programme for Technology and Employment. The study examined jobs that did not exist in official classifications in the 20th century, using data on 1.2m workers in the US and updates of official industry classifications to identify new technology industries.

Business dynamism

Young firms are important net job creators in an economy but the process of firm creation and destruction results in many failures. This process is called business dynamism and research has confirmed that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.

Ireland’s Central Statistics Office (CSO) has only recently begun publishing employer firm data and in the context of a persistent underperformance by Irish-owned international trading firms, the very poor new firm creation rate is depressing.

In the US the startup rate has halved from its level of over 16% in 1977, resulting in an increase in the survival rate of older firms. The average number of jobs per new firm has also declined.

Big tech firms either buy startups with potential or they kill them by copying their technology.

In the UK, the Office for National Statistics has reported that the employer business birth rate, as a proportion of all active employer businesses, for 2016 was 15.3% and the employer business death rate for 2016 was 11.5%.

The ONS said that the highest employer business death rate for 2016 was recorded by finance and insurance, at 17.1%, followed by property at 16.9%. Property was the industry where the death rate increased the most from 2015 to 2016 with a difference of 9.3%. The retail industry had the least increase with a difference of only 0.5%.

Northern Ireland had a birth rate of 13.5% and a death rate of 9.1%.

Of about 250,000 firms that were born in 1998, UK research shows that:

10% of firms born in 1998 survive until 2013 and these survivors have about 390 thousand employees in 2013, up from about 160 thousand at birth. Although taken together, the 13 survivors have added about 230 thousand jobs this is a ‘net’ figure: some firms will have added jobs; some shed jobs; others will have exactly the same number as they had at birth. In fact 60% of the surviving firms are job creators and the bulk of these job creators (like the bulk of all firms) are born very small (with less than five employees) and most of them remain very small and create very few jobs. But within the class of very small firm start-ups (those with less than 5 employees in 1998) there is a very, very, small group (6% of them: just over 1,200 firms) which are extraordinary prolific job creators (EPJCs): between them adding 90 thousand jobs, about 40% of net job creation by all 15 year survivors. It is this group of firms that require further analysis as we seek to understand the process of small business growth.

Related to the poor employer firm birth rate is another grim statistic — Ireland has one of the lowest ratios of export firms to the population in the European Union: see the relevant section in this report.

Business economy ex-holding cos Source: OECD 
%
 
%
   

2014

 

2015

Birth rate of employer enterprises Australia 11.2   11.8
  Austria 8.9   8.7
  Belgium 3.8   3.5
  Canada 7.8   8
  Czech Republic 5.7   12
  Denmark 10.7   ..
  Estonia 13.3   14.2
  Finland 11.1   10.7
  France 11.3   11.3
  Germany 10.5   6.4
  Greece ..   10.7
  Hungary 16.5   19.4
 

Ireland

3.7   4.1
  Italy 8.3   11.2
  Latvia 10.3   10.8
  Luxembourg 10.2   9.7
  Netherlands 9.2   9
  New Zealand 11.6   12.5
  Norway 9   10.3
  Poland 15.7   23.1
  Portugal 10   10
  Slovak Republic 8.3   9.5
  Slovenia 10.2   10.4
  Spain 10.2   10.1
  Sweden 10.3   10.2
  Switzerland   5.1 5.2
  United Kingdom 15.2   15.7
  Lithuania 10.9   8.8
  Romania 8.9   10.4
Death rate of employer enterprises Australia 8.1   8.2
  Austria 8   8.2
  Belgium 1.2   0.9
  Canada 8.7   ..
  Czech Republic 6.3   10.6
  Denmark 3   ..
  Estonia 8.6   7.8
  Finland 10.1   12.3
  France 10.9   ..
  Germany 7.8   7.2
  Greece ..   4.8
  Hungary 11.5   37.5
 

Ireland

3.7   3
  Italy 9.1   8.8
  Latvia 3.5   2.1
  Luxembourg 8.2   8.7
  Netherlands 9.5   8.6
  New Zealand 10.9   ..
  Norway 7.6   9
  Poland 14.7   ..
  Portugal 10   8
  Slovak Republic 11.4   11.5
  Slovenia 8.9   6.9
  Spain 10.4   9.9
  Sweden 9.6   9.7
  United Kingdom 9.7   10.9
  Lithuania 5.9   5.3
  Romania 12.7   13.7