Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries

Mills, Duncan; Timmins, Jason Working Paper Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries New Zealand Treasury Working Paper, No. 04/11 Provided in Cooperation with: The Treasury, New Zealand Government Suggested Citation: Mills, Duncan; Timmins, Jason (2004) : Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries, New Zealand Treasury Working Paper, No. 04/11, New Zealand Government, The Treasury, Wellington This Version is available at: https://hdl.handle.net/10419/205551 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries Duncan Mills and Jason Timmins N EW Z EALAND T REASURY W ORKING P APER 04/11 S EPTEMBER 2004 NZ TREASURY WORKING PAPER 04/11 Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries MONTH / YEAR September 2004 AUTHORS Duncan Mills The Treasury PO Box 3724 Wellington 6015 New Zealand Email Telephone Fax [email protected] 64 4 471 5206 64 4 473 0537 Jason Timmins Motu Economic and Public Policy Research PO Box 24390 Wellington New Zealand Email Telephone Fax [email protected] 64 4 939 4250 64 4 939 4251 ACKNOWLEDGEMENTS We would like to thank Geoff Lewis and Bob Buckle for their input on this paper. Findings from the paper have also been presented to the NZ Association of Economists’ Conference and to the Workplace Productivity Working Group, and we are grateful for the comments received from participants and working group members. NZ TREASURY New Zealand Treasury PO Box 3724 Wellington 6015 NEW ZEALAND Email Telephone Website [email protected] 64-4-472 2733 www.treasury.govt.nz DISCLAIMER The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury. The New Zealand Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper. The paper is presented not as policy, but to inform and stimulate wider debate. Access to the data used in this Working Paper was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statistics Act 1975. The results presented in this Working Paper are the work of the authors, not Statistics New Zealand. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND i Abstract Previous work has suggested that New Zealand’s firm dynamics and business demographics show a high proportion of small firms, small average firm size, and high rates of firm and employment turnover by comparison with other OECD countries. This paper reports on new comparative analyses of New Zealand’s firm dynamics and business demography that attempt to control for measurement differences, using data from Statistics New Zealand’s Business Demographic Statistics database, the OECD firmlevel project, and the OECD’s analysis of the Eurostat database. The variables investigated include firm size, firm turnover (entry and exit) rates, employment turnover rates, firm survival rates, and firm growth. The findings suggest that once measurement differences are taken into account, overall New Zealand’s firm dynamics and demographics are broadly similar to many other OECD countries. Potential policy implications of these findings are discussed. JEL CLASSIFICATION L11 - Production, Pricing and Market Structure; Size Distribution of Firms D21 - Firm Behaviour KEYWORDS Firm Size; Firm Dynamics; Firm Growth; Entry and Exit WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND ii Table of Contents Abstract...............................................................................................................................i Table of Contents ..............................................................................................................ii List of Tables......................................................................................................................ii List of Figures...................................................................................................................iii 1 Introduction ..............................................................................................................1 2 Measurement issues in firm dynamics...................................................................2 2.1 New Zealand studies......................................................................................................2 2.2 Measurement issues.......................................................................................................3 3 Description of data...................................................................................................3 3.1 New Zealand data – the Business Demographic Statistics database............................3 3.2 International data............................................................................................................4 4 Data issues and cross-country differences...........................................................5 4.1 Sector coverage..............................................................................................................5 4.2 Sample period.................................................................................................................5 4.3 Measure of employment.................................................................................................6 4.4 Unit of analysis – plant versus enterprise.......................................................................6 4.5 Threshold for inclusion of a firm in the database............................................................6 4.6 Definition of firm entry and exit.......................................................................................7 4.7 One-year firms................................................................................................................7 4.8 Addressing measurement differences............................................................................8 5 Main findings............................................................................................................8 5.1 Firm size .........................................................................................................................9 5.2 Size of entering and exiting firms..................................................................................17 5.3 Firm turnover (entry and exit) rates ..............................................................................19 5.4 Employment turnover rates...........................................................................................21 5.5 Firm survival rates ........................................................................................................23 5.6 Firm growth...................................................................................................................25 6 Conclusions and policy implications...................................................................28 References .......................................................................................................................31 Appendix ..........................................................................................................................32 List of Tables Table 1 – Proportion of firms with less than 20 employees, NZ and OECD firm project data............9 Table 2 – Proportion of employment in firms less than 20 employees, NZ and OECD firm project data .............................................................................................................................10 Table 3 – Average number of employees per firm, NZ and OECD firm project data .......................11 Table 4 – Firm size indicators in manufacturing sector, NZ and OECD firm project data................12 Table 5 – Firm size indicators in services sector, NZ and OECD firm project data..........................12 Table 6 – Distribution of firms by size, NZ and Eurostat data...........................................................13 Table 7 – Distribution of firms by size, NZ, USA and UK..................................................................14 Table 8 – Distribution of employment by firm size, NZ, USA and UK...............................................15 Table 9 – Distribution of firms and employment by firm size, NZ and Australia ...............................16 Appendix Table 1 – Key data characteristics – New Zealand BDS, OECD firm-level project, and Eurostat data....................................................................................................................32 WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND iii List of Figures Figure 1 – Size of entering firms relative to incumbent firms, NZ and OECD firm project data .......18 Figure 2 – Size of exiting firms relative to incumbent firms, NZ and OECD firm project data..........19 Figure 3 – Firm turnover (entry and exit) rates, NZ and OECD firm project data, annual average ...................................................................................................................................20 Figure 4 – Employment turnover due to firm entry and exit, NZ and OECD firm project data, annual average .......................................................................................................................22 Figure 5 – Firm survival rates at different lifetimes, NZ and OECD firm project data.......................24 Figure 6 – Employment growth of surviving firms, NZ and OECD firm project data.........................26 Figure 7 – Employment growth of surviving firms at two years following birth, NZ and Eurostat data...........................................................................................................................27 WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 1 Firm Dynamics in New Zealand: A Comparative Analysis with OECD Countries 1 Introduction The entry and growth of new firms, and the decline and exit of existing firms, are important contributors to aggregate productivity growth in OECD countries (Scarpetta, Hemmings, Tressel, and Woo, 2002). As well as contributing to productivity directly, firm entry and exit also increase competition, providing an incentive for existing firms to engage in activities to raise their own productivity. For these reasons, high levels of business dynamism are often thought to be positive for economic performance, and institutions or regulations that restrict firm creation and adjustment are seen as potential impediments to economic growth (Brandt, 2004). The relationship between firm dynamics and productivity growth in New Zealand has not yet been fully investigated. However, several studies have now looked at evidence on New Zealand’s business demographics and levels of business dynamism over time. These studies have highlighted some apparent differences between New Zealand and other OECD countries in terms of indicators of firm dynamics and business demography, including small firm size, high rates of employment turnover (job creation and destruction), high rates of firm turnover (entry and exit), and low rates of firm growth. This paper extends on previous New Zealand research by carrying out an extensive comparative analysis of firm dynamics in New Zealand and other OECD countries. This analysis attempts to take measurement differences into account (as far as is possible given data limitations) by obtaining new business demography statistics for New Zealand that use similar criteria to those applied in recent OECD studies (Bartelsman et al, 2003; Brandt 2004). The findings suggest that once measurement differences are taken into account, New Zealand’s firm dynamics and demographics are more similar to other OECD countries than has previously been thought. As well as addressing measurement issues, the current paper also looks at a broader range of firm dynamics variables than has been covered in previous studies. The variables covered in the analysis include overall firm size, size of entering and exiting firms relative to incumbent firms, firm and employment turnover rates, firm survival rates, and firm growth rates. The remainder of the paper will begin by discussing the previous studies of business dynamics in New Zealand and the measurement issues they raise, and then go on to WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 2 outline the key characteristics of New Zealand’s business demography data and of the overseas data that are available for comparison. The key measurement issues to be considered in making international comparisons of firm dynamics will then be set out, and the main differences in the different databases highlighted. The paper will then report on the results of comparative analysis of a range of firm dynamics variables, controlling for measurement differences to the extent that this is possible given data limitations. 2 Measurement issues in firm dynamics 2.1 New Zealand studies As discussed in the introduction, several studies have now looked at evidence on New Zealand’s business demographics and levels of business dynamism over time (Johnson, 1999; Carroll, Hyslop, Maré, Timmins, and Wood, 2002; Skilling, 2001; Simmons, 2002; MED, 2003; Mills, 2003). These studies have highlighted some apparent differences between New Zealand and other OECD countries in terms of indicators of firm dynamics and business demography. First, almost all of the studies of firm dynamics in New Zealand have concluded that New Zealand has a very high proportion of small firms (and correspondingly low average firm size) by comparison with other OECD countries. An exception is MED’s (2003) study “SMEs in New Zealand: Structure and Dynamics”, which concluded that the proportion of SMEs in New Zealand was broadly in line with other countries, although the proportion of employment accounted for by SMEs was higher in New Zealand. Mills (2003) also presented some preliminary data to suggest that New Zealand’s firms were not as small as had been claimed in previous studies. Secondly, Carroll et al’s (2002) study presented comparisons with the USA and UK (based on OECD work) which suggested that New Zealand has high rates of employment turnover (ie, job creation and destruction) compared with other countries. Carroll et al (2002) suggested that this could be linked to the high proportion of small firms in New Zealand, as job turnover tends to be higher in such firms. Thirdly, Mills (2003) compared New Zealand’s firm turnover (entry and exit) rates with other OECD countries, and found the New Zealand rates to be substantially higher than typical OECD figures. New Zealand’s firm turnover rates – as calculated by Johnson (1999) – averaged about 37% per year over the 1990s, as compared with a modal OECD figure of approximately 20%. Fourthly, although good comparative data were not available, Skilling (2001), Simmons (2001), and Carroll et al (2002) all presented preliminary data that suggested low or modest rates of employment growth among New Zealand firms. However, Mills (2003) presented data that suggested employment growth among new firms in New Zealand was slightly higher than in European countries, although lower than in the USA. A range of views has been expressed as to whether these features of New Zealand’s firm dynamics and business demography should be seen as positive, negative or neutral for economic performance. As discussed above, business dynamism is generally thought to be positive for economic performance and productivity. However, some authors (eg, Skilling, 2001; Simmons, 2001) have argued that high rates of firm entry and exit, small firm size, and low rates of firm growth could be indicative of a difficult economic WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 3 environment – possibly due to size and distance – that impedes growth in New Zealand firms. 2.2 Measurement issues Regardless of whether the features of New Zealand’s firm dynamics outlined above are thought to be positive or negative for economic performance, a major unresolved question is the extent to which differences in firm dynamics between New Zealand and other countries can be explained by measurement differences. The comparability of firm demographic data across countries has been noted by the OECD as an important potential constraint on studies of firm behaviour, and improving data comparability was a major reason for the instigation of the OECD’s firm-level project (Scarpetta et al, 2002; Bartelsman, Scarpetta, and Schivardi, 2003). This project attempted to construct a uniform business demography database covering ten OECD countries, through harmonisation of key measurement dimensions (eg, definition of entry and exit, definition of a firm). However, New Zealand was not one of the countries included in the study. Measurement problems in comparing firm dynamics across countries were also highlighted in a recent OECD paper by Brandt (2004). Brandt made use of a new firm dynamics database – developed by Eurostat – which had some different characteristics from the OECD firm-level project database, but covered many of the same countries. By comparing firm dynamics statistics derived from the OECD and Eurostat databases, Brandt was able to show that specific measurement differences in the data were strongly associated with differences in firm dynamics indicators. A particularly important factor highlighted by Brandt (2004) was that of zero-employee (non-employing) firms – these firms were excluded from the data in the OECD firm-level project, but included in the Eurostat data. Brandt found that the inclusion of zero-employee firms made a large difference not only to measures of firm size, but also to the measurement of other variables, including firm turnover rates and firm growth. Mills (2003) drew on an early draft of Brandt’s (2004) paper to put forward some initial hypotheses on how measurement issues might affect New Zealand’s firm dynamics indicators. Mills suggested that the inclusion of zero-employee firms in New Zealand’s business demography data might lead to estimates of smaller firm size, higher turnover rates, lower survival rates, and higher growth rates than would otherwise be the case. However, at that time the data needed to test these hypotheses had not yet been obtained. 3 Description of data 3.1 New Zealand data – the Business Demographic Statistics database All of the New Zealand data discussed in this paper are sourced from the New Zealand Business Demographic Statistics database (BDS). A full description of this database can be found in Carroll et al (2002), but to summarise, the BDS is effectively a “snapshot” of the Business Frame (the register of all economically significant businesses in New Zealand) that is updated in February each year. The information in the BDS is derived from Statistics New Zealand surveys, particularly the Annual Business Frame Update or WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 10 The comparison in Table 1 suggests that once zero-employee and one-year firms have been removed, the proportion of small firms in the New Zealand population is broadly within the OECD range. New Zealand has a lower proportion of small firms (90.7%) than do Finland (92.6%), Italy (93.0%), and the Netherlands (96.0%) – although it is not possible to be certain in the latter case, as zero-employee firms have been included in the Netherlands data. New Zealand does however have a higher proportion of small firms than Denmark, Portugal, USA, Germany and France. The size of the difference ranges from 2.6% (Denmark) up to 11.9% in the case of France. However, France appears to be something of an outlier, and this is probably due to the fact that the French business register applies a high turnover threshold – 3.8 million FFr per year in the manufacturing sector, and 1.1 million FFr per year in the services sector (Bartelsman et al, 2003). This high turnover threshold is likely to mean that many small firms would be excluded from the French data. Proportion of employment in small firms Table 2 shows the proportion of employment in firms with fewer than 20 employees, again for New Zealand and other OECD countries from the firm-level project. The New Zealand data has been adjusted in the same way as for the previous comparison.5 Table 2 – Proportion of employment in firms less than 20 employees, NZ and OECD firm project data Country Proportion France 14.0% USA* 17.3% Germany* 23.6% Finland 25.8% Portugal* 26.9% NZ 28.2% Denmark 30.2% Netherlands 34.2% Italy* 38.1% NZ (0-emp/1-yr firms in, total emp) 40.1% *Private sector only. Note that if public sector is removed from the NZ data, the proportion of employment in small firms rises to 32.5%. Sources: Statistics NZ and OECD/Bartelsman et al 2003 This comparison presents a broadly similar picture to the previous one on the distribution of firms. New Zealand has a smaller proportion of employment in small firms (28.2%) than do Italy (38.1%), Denmark (30.2%), and the Netherlands (34.2%), but a higher proportion of employment in small firms than the remaining countries (Denmark, Portugal, USA, Germany and France). France again appears to be an outlier, with only 14.0% of employment in small firms, but this is likely to be related to the high turnover threshold discussed above. The USA also has a relatively low proportion of employment (17.3%) in small firms. 5 The reader may question why removing zero-employee firms would make any difference to the share of employment in small firms. However, as discussed in section 3.3, public data and previous studies in New Zealand have generally used a “total employment” measure, where working proprietors are included in the employment count. The comparison in Table 2 looks at the share of employees only, but a figure for New Zealand using a “total employment” measure is also shown for comparative purposes. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 11 Average firm size A final indicator of firm size used in the OECD firm-level project is the average number of employees per firm. Table 3 shows the average number of employees per firm for New Zealand and other OECD countries from the firm-level project. The New Zealand data have been adjusted in the same way as for the previous two comparisons. Table 3 – Average number of employees per firm, NZ and OECD firm project data Country Employees per firm France 33.2 USA* 25.6 Germany* 17.7 Portugal* 17.4 Denmark 15.2 Canada 15.2 NZ 13.7 Finland 13.0 Italy* 10.0 Netherlands 5.8 NZ (0-emp/1-yr firms in) 5.6 *Private sector only. Note that if public sector is removed from the NZ data, the average number of employees per firm drops to 11.6. Sources: Statistics NZ and OECD/Bartelsman et al 2003 Once again, the pattern is similar to the previous two indicators of firm size. New Zealand has a higher average number of employees per firm (13.7) than do Finland (13.0), Italy (10.0) and the Netherlands (5.8) – though again zero-employee firms have been included for the Netherlands data. However, New Zealand has a smaller average number of employees per firm than Denmark, Portugal, the USA, Germany, France and Canada. The differences in most cases are not very great, although the USA and France in particular have a high average number of employees per firm (25.6 and 33.2 respectively). Data caveats again apply to the figure for France. Table 3 also shows particularly clearly the impact that measurement issues can have on indicators of firm size. When zero-employee and one-year firms are removed from the New Zealand data, our average firm size stands at 13.7 employees per firm, whereas when these firms are left in the data (as they have been in previous studies), average firm size drops to 5.6, the lowest of the countries shown in the table. Sector comparisons The above comparisons of firm size relate to the economy as a whole. However, it may also be of interest to look at how firm size compares in different sectors. Skilling (2001) presented data to suggest that New Zealand firms were particularly small in the manufacturing sector, relative to manufacturing firms in other countries. While Skilling’s (2001) comparisons are likely to have been affected by measurement issues, it is of interest to see whether the proposition that New Zealand has smaller firms in the manufacturing sector still holds once measurement differences are taken into account. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 12 Tables 4 and 5 compare firm size in the manufacturing and business services sectors for New Zealand and other countries in the OECD firm-level project. Three indicators of firm size are again shown – the proportion of firms with less than 20 employees, the proportion of employment in firms with fewer than 20 employees, and average number of employees per firm. (The table is ordered in terms of average number of employees per firm, as this indicator shows the cross-country differences most clearly.) Zero-employee and one-year firms have been removed from the New Zealand data. Table 4 – Firm size indicators in manufacturing sector, NZ and OECD firm project data Country Average employees per firm % of firms with <20 employees % employment in firms <20 USA 80.3 69.9% 5.8% UK 40.7 74.9% 8.3% Canada 40.5 data unavailable data unavailable Germany 39.1 77.9% 11.3% Denmark 30.4 74.0% 16.1% France 32.1 73.6% 17.0% Portugal 31.0 70.5% 15.7% Finland 27.8 84.8% 13.0% NZ 20.0 85.3% 22.3% Netherlands 18.3 86.7% 16.9% Italy 15.3 87.5% 30.3% Sources: Statistics NZ and OECD/Bartelsman et al 2003 Table 5 – Firm size indicators, business services sector, NZ and OECD firm project data Country Average employees per firm % of firms with <20 employees % of employment in firms <20 France 35.7 78.8 12.1 USA 21.4 87.9 20.6 Denmark 12.7 90.8 33.4 Canada 12.0 data unavailable data unavailable Germany 11.5 90.2 33.8 Portugal 11.4 92.8 39.8 NZ 10.5 93.4 35.2 Finland 9.9 94.5 33.0 Italy 6.8 96.5 46.3 Netherlands 5.3 96.8 41.9 Sources: Statistics NZ and OECD/Bartelsman et al 2003 The comparisons in these two tables provide some support for the idea that it is particularly in the manufacturing sector that New Zealand tends to have smaller firms than other countries. New Zealand’s manufacturing firms are not the smallest of the countries shown – Italy and the Netherlands both appear to have smaller firms (although again zero-employee firms have been included for the Netherlands data). However, the WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 13 differences in firm size between New Zealand and other countries with larger manufacturing firms are more pronounced than they were for the total economy data. For example, in the total economy data, the average number of employees per firm in New Zealand was similar to countries like Denmark, Canada, and Finland. In contrast, in the manufacturing sector data, all three of these countries have a noticeably higher average number of employees per firm than does New Zealand (30.4 for Denmark, 27.8 for Finland, and 40.5 for Canada, as compared with 20.0 for NZ). New Zealand is also towards the smaller end of the size distribution in the services sector, as shown in Table 5. However, the cross-country variation in firm size in the services sector is much less than the variation in the manufacturing sector. As might be expected, firms are also considerably smaller in the services sector than in the manufacturing sector overall. 5.1.2 Comparison with Eurostat data An alternative approach to analysing firm size is to compare the firm size indicators for New Zealand (with zero-employee and one-year firms included) against those from the Eurostat data (Brandt, 2004). Table 6 shows the proportion of firms in the population that have 0, 1-4, 5-9, 10-19, and 20+ employees, in New Zealand and in other OECD countries covered by the Eurostat. Zero-employee firms and one-year firms have been left in the New Zealand data for this comparison. The New Zealand figures are averages calculated for the 1997-2000 period, in order to match the time period of the Eurostat data. Table 6 – Distribution of firms by size, NZ and Eurostat data Size (Employees) NZ Den Finland Spain Neth Portugal UK Sweden 0 56.3% 58.2% 61.2% 56.4% 37.9% 56.1% 26.5% 63.8% 1-4 29.9% 27.8% 27.9% 32.4% 45.5% 31.5% 52.3% 24.9% 5-9 5.5% 6.5% 5.5% 5.9% 6.5% 6.2% 10.7% 5.6% 10-19 4.4% 3.9% 2.9% 3.0% 4.3% 3.4% 5.9% 3.0% 20+ 3.9% 3.7% 2.6% 2.4% 5.8% 2.8% 4.6% 2.7% Sources: Statistics NZ and Eurostat/Brandt 2004 On this comparison, all of the countries shown have a very high proportion of small firms (95% or above), but New Zealand seems if anything to have a slightly smaller proportion of small firms than most other countries. Of New Zealand’s firms, 96.1% have fewer than 20 employees, the third lowest figure after the Netherlands and the UK. However, it must be kept in mind that the New Zealand data applies a turnover criteria (firms must have annual GST sales/expenses of over $30,000 to be included in the BDS) whereas the Eurostat data does not (any firm with positive turnover is normally included). The $30,000 threshold would be likely to reduce the number of small firms – particularly zero-employee firms – in the New Zealand data relative to the Eurostat. In light of this difference in turnover thresholds, the proportion of zero-employee firms in the New Zealand data appears possibly quite high; however, a definitive comparison is not possible without knowing how many New Zealand firms are excluded by the turnover threshold. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 14 Brandt’s (2004) analysis of the Eurostat firm dynamics data did not include either the share of employment by firm size or the average number of employees per firm. It is therefore not possible to make a comparison with the Eurostat data on these indicators. 5.1.3 Other comparisons of firm size Some final comparisons of firm size were carried out using publicly available business demographic data from the US census bureau website6, the UK small business service website7, and the Australian Bureau of Statistics website.8 One advantage of this additional data was that it provided a more detailed breakdown of firm size at the upper end of the size distribution, allowing comparison not just of the proportion of small firms, but also of the proportion and share of employment of larger firms. The data from these websites also covered zero-employee firms, allowing additional comparisons at the bottom end of the size distribution. Comparisons with USA and UK Tables 7 and 8 compare the distribution of firms and share of employment across size brackets 0, 1-4, 5-9, 10-19, 20-99, 100-499, and 500+ employees, for New Zealand, the USA and the UK. Data for all three countries are for the 2001 year, and are for private sector businesses only to ensure comparability9. Zero-employee and one-year firms have been left in for the New Zealand data, as for the other two countries. Table 7 – Distribution of firms by size, NZ, USA and UK – private sector Size (Employees) NZ USA UK 0 61.0% 77.3% 69.3% 1-4 23.9% 12.3% 20.0% 5-9 7.8% 4.6% 5.3% 10-19 4.1% 2.8% 3.0% 20-99 2.7% 2.4% 1.9% 100-499 0.4% 0.4% 0.3% 500+ 0.1% 0.1% 0.1% Sources: Statistics NZ, US Census Bureau, and UK Small Business Service 6 http://www.census.gov/epcd/susb/2001/us/US--.HTM 7 http://www.sbs.gov.uk 8 http://www.abs.gov.au/ausstats/[email protected]/Lookup/A7799B9452831799CA256B35001C9567 9 Data was available for New Zealand and the UK that both included and excluded the public sector. However, data for the USA was only available for private sector firms. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 15 Table 8 – Distribution of employment by firm size, NZ, USA and UK – private sector Size (Employees) NZ USA UK 0 0.0% 0.0% *1.4% 1-4 10.9% 4.9% 8.4% 5-9 10.9% 5.8% 6.8% 10-19 11.6% 7.2% 7.9% 20-99 21.9% 17.7% 15.2% 100-499 19.0% 14.3% 13.5% 500+ 25.8% 50.1% 46.7% *The UK Small Business Statistics show a small number of employees in “zero-employee” firms. It is not clear why this would be the case, but they have been left in for the purposes of this comparison. Sources: Statistics NZ, US Census Bureau, and UK Small Business Service The comparison in Table 7 suggests that the distribution of firms is broadly similar across all three countries. If anything, New Zealand seems to have a slightly lower proportion of small firms than the USA and the UK (where small is defined as fewer than 20 employees): 96.8% of New Zealand firms have fewer than 20 employees, as compared with 97.2% for the USA and 97.6% for the UK. The USA has the highest proportion of zero-employee firms, and New Zealand the lowest. However, detailed information on any turnover threshold that may have been applied to the US and UK data was not available on the public websites. It could be that the turnover threshold applied in the New Zealand data (minimum of $30,000 in GST sales/expenses) is again impacting on the number of zero-employee firms relative to the other countries in this comparison. There is also little difference in the proportion of large firms across the three countries: in all three, around 0.1% of the population of firms have 500 or more employees. However, there is a noticeable difference in the share of employment accounted for by large firms, as shown in Table 8. In New Zealand, only 25.8% of employment is in firms of 500+ employees, whereas in the USA and the UK around half of employment is in such firms. Similarly, 44.8% of employment in New Zealand is in firms with 100 or more employees, while the equivalent figures for the USA and UK are 64.4% and 60.2% respectively.10 Conversely, a larger share of New Zealand’s employment is in small to medium firms. These figures suggest that New Zealand’s large firms are not as large as those in the USA and the UK, and further analysis confirms this view: for example, the average number of employees per firm in firms with 500+ employees is 2532.2 in the UK and 3321.1 in the USA, but only 1593.9 in New Zealand. However the average number of employees per firm overall (with zero-employee firms included for all three countries) is similar across the three countries: 5.6 for NZ, 5.2 for the USA, and 5.1 for the UK. The USA has the lowest average firm size on this comparison, due to the very high proportion of zero-employee firms in the US data. This again reinforces the significant impact that 10 It will be noted that these figures on the share of employment in large firms in New Zealand differ from other studies – for example, MED (2003) and Carroll et al (2002) both calculated the share of employment in firms of 100+ employees at about 40%. However it must be kept in mind that these studies used a “total employment” measure of employment, ie working proprietors were included in the count. In contrast the figures shown here are for employees only. Note also that the MED (2003) study used an FTE measure of employment as opposed to a head count measure. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 16 measurement differences can have in calculations of firm size. When zero-employee firms are removed from the USA data (as in the OECD firm project), the USA has a high average firm size relative to other OECD countries. Comparisons with Australia A final comparison of interest – with Australia – is shown in Table 7. The table shows the distribution of firms and share of employment for both countries, across size brackets 0, 14 (NZ 1-5), 5-19 (NZ 6-19), 20-99, 100-199, and 200+ employees. The New Zealand data is for 2001 while the Australian data is for 1999-2000. Zero-employee and one-year firms have been left in for both countries, and the figures shown are for private sector firms only to ensure comparability.11 Table 9 – Distribution of firms and employment by firm size, NZ and Australia – private sector Size (Employees) Firms Employment NZ Australia NZ Australia 0 61.0% 48.6% 0.0% 0.0% 1-4 23.9% 32.8% 11.4% 13.2% 5-19 11.9% 15.0% 17.8% 25.1% 20-99 2.9% 3.0% 22.3% 22.4% 100-199 0.3% 0.3% 8.0% 8.9% 200+ 0.2% 0.2% 36.8% 30.5% Sources: Statistics NZ and Australian Bureau of Statistics Table 7 suggests that the distribution of firms is broadly similar across the two countries. New Zealand has a noticeably higher proportion of zero-employee firms (61.0% as compared with 48.6% for Australia), while Australia has more firms sized 1-4 and 5-19 employees. However the overall proportion of small (less than 20 employees) firms is very similar in the two countries (96.8% for NZ versus 96.5% for Australia). The distribution of employment is also similar in both countries, although New Zealand has a somewhat higher proportion of employment in large firms of 200 employees or more (36.8% vs 30.5% for Australia). This suggests that New Zealand’s large firms may in fact be larger on average than Australia’s, and further analysis backs this up: the average number of employees per firm in firms of over 200 employees is 686.8 in New Zealand and 649.6 in Australia. 5.1.4 Summary and discussion Taken as a whole, the analyses in Section 5.1.1-5.1.3 suggest that once measurement differences are taken into account, the size distribution of firms in New Zealand is broadly similar to a number of other OECD countries. While our firms are generally at the smaller end of the size distribution in most of the comparisons, we no longer appear to be an outlier in terms of firm size in the way that many previous studies have suggested. The major reason for the widespread view that our firms are unusually small appears to be that 11Although data was available for New Zealand that both included and excluded the public sector, data for Australia was only available for private sector firms. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 17 previous studies have compared statistics for New Zealand that included zero-employee firms, against statistics for other countries that did not include such firms. It also does not appear to be the case that New Zealand is particularly unusual in terms of having large numbers of zero-employee firms. Where information is available on zeroemployee firms (eg, in the Eurostat data and on websites for the UK, US, and Australia) it appears common for 50% or more of the population of firms to have zero employees. However, it is difficult to make accurate comparisons at the bottom end of the size distribution, given limited information on the other criteria that are applied (eg turnover criteria) to determine the inclusion of firms in different countries’ databases. The comparison with the Eurostat data did suggest that New Zealand might have quite high numbers of zero-employee firms, when account is taken of the fact that the New Zealand data applies a turnover threshold whereas the Eurostat data does not. Although generally speaking New Zealand’s firms seem to be broadly within the OECD range in terms of size, there are a couple of areas of difference. For one, New Zealand does seem to have relatively small firms in the manufacturing sector by OECD standards. For another, the share of employment accounted for by large firms (and the average number of employees per firm in large firms) is lower in New Zealand than in the USA and the UK. In other words, while we do not seem to have significantly more small firms than many other countries, our large firms seem not to be as large, at least by comparison with some other countries. Although the data are not sufficient to test hypotheses as to why this would be the case, it seems plausible that the small size of New Zealand’s domestic market might constrain firm growth at the top end of the size distribution. Generally speaking, the data do suggest that bigger countries like the USA, the UK, Germany and France have a greater share of employment in large firms than do smaller countries. If economies of scale are more important in the manufacturing sector, this could possibly explain why the differences in firm size across countries are more marked in this sector. 5.2 Size of entering and exiting firms The analyses in Section 4.1 examined the size of firms in the population as a whole. Another variable of interest with regard to firm size is the size of entering and exiting firms. Previous studies (eg Carroll et al, 2002; Bartelsman et al, 2003) have found that in both New Zealand and other OECD countries, entering and exiting firms tend to be significantly smaller than incumbent firms. However, no attempt has yet been made to compare the size of entering and exiting firms between New Zealand and other OECD countries. Figures 1 and 2 show the size of entering and exiting firms relative to incumbent firms, for New Zealand and other OECD countries from the firm-level project. The measure of firm size used is average number of employees per firm. The New Zealand data are averaged across the 1995-2000 period, with zero-employee and one-year firms removed from the data. This comparison suggests that the size of both entering and exiting New Zealand firms (relative to incumbents) is at or slightly above the middle of the OECD range. In New Zealand, entering firms are on average about 43% of the size of incumbent firms, while exiting firms are slightly larger at around 49% of the size of incumbent firms. While these figures are similar to those for a number of European countries, it is noticeable that firms in North America (the USA and particularly Canada) seem to enter at a smaller size WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 18 relative to incumbent firms. This pattern is discussed further below under the analysis of firm growth (Section 5.6). Figure 1 – Size of entering firms relative to incumbent firms, NZ and OECD firm project data 0% 10% 20% 30% 40% 50% 60% 70% 80% Canada Germany USA Portugal Netherlands France NZ Italy Denmark Finland Percent of incumbent size Sources: Statistics NZ and OECD/Bartelsman et al 2003 WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 19 Figure 2 – Size of exiting firms relative to incumbent firms, NZ and OECD firm project data 0% 10% 20% 30% 40% 50% 60% 70% 80% Canada Germany USA France Italy Portugal Denmark NZ Netherlands Finland Percent of incumbent size Sources: Statistics NZ and OECD/Bartelsman et al 2003 Firms in New Zealand therefore seem to enter and exit at a similar or slightly larger size (relative to incumbent firms) compared to firms in most other OECD countries. While this result is not particularly informative in and of itself, it is of some relevance to understanding rates of employment turnover and firm growth. This will become apparent under Sections 5.4 and 5.6 below. 5.3 Firm turnover (entry and exit) rates Firm turnover (entry and exit) rates refer to the proportion of firms in the population that, in any given year, are either new entrants or will exit the market within the year. As mentioned in the introduction, Mills (2003) found New Zealand’s turnover rates to be substantially higher than the typical OECD rates over the 1990s. However, these comparisons were potentially confounded by measurement differences. For one, the inclusion of zero-employee firms in the New Zealand data could have increased firm turnover estimates (relative to the OECD data) because smaller firms tend to have higher entry and exit rates. A second issue is the inclusion of one-year firms in the New Zealand data. Since a one-year firm by definition is a new entrant in one year and an exiting firm in the next, including such firms in the analysis would be likely to increase entry and exit rates in the New Zealand data relative to the OECD. 5.3.1 Comparison with OECD project Figure 3 shows the annual average firm turnover rates in New Zealand and other OECD countries from the OECD firm-level project. The New Zealand data are for the period 1995-2000, while the OECD data range across the period 1989-1994. Zero-employee and one-year firms have been removed from the New Zealand data. The figure for New Zealand when these firms are left in the data is also shown for comparative purposes. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 26 should be interpreted cautiously though, given that the six-year growth rates for New Zealand are based on only one birth cohort of firms. Figure 6 – Employment growth of surviving firms, NZ and OECD firm project data 0% 20% 40% 60% 80% 100% 120% 140% 160% Finland Portugal Germany Italy NZ NZ (0-emp/1-yr firms in) USA Percentage of initial employment After 2 years After 4 years After 7 years (NZ 6 years) Sources: Statistics NZ and OECD/Bartelsman et al 2003 5.6.2 Comparison with Eurostat data An alternative approach to analysing firm growth rates is to compare the growth rates for New Zealand (with zero-employee and one-year firms included) against those from the Eurostat data (Brandt, 2003). Comparing growth rates with the Eurostat data is likely to be more feasible than comparing firm survival and firm turnover rates, given that the latter are strongly affected by the cleaning of “false” entry and exit. Figure 7 shows that the two-year growth rates of New Zealand firms (with zero-employee and one-year firms included) are at the lower end of the range of countries covered by the Eurostat, although not the lowest of the countries surveyed. However, this comparison should be treated with some caution, for at least two reasons. For one, the Eurostat data on firm growth is only available for one birth cohort (1998), and at one time period (two years following birth). For another, it is possible that the cleaning of false births and deaths from the Eurostat data could also have an effect on growth rates. For example, if a firm changes ownership this would be treated as a firm exit in the New Zealand data, and thus the firm would not be included in the growth figures. However, in the Eurostat data the firm’s growth would continue to be measured. If high growth firms are more likely to be bought out (which seems possible), this could bias the growth rates downward in the New Zealand data relative to the Eurostat. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 27 Figure 7 – Employment growth of surviving firms at two years following birth, NZ and Eurostat data 0 10 20 30 40 50 60 70 80 90 100 Netherlands Portugal NZ UK Denmark Sweden Spain Italy Finland Percentage of initial employment Sources: Statistics NZ and Eurostat/Brandt 2004 5.6.3 Summary and discussion The above analysis suggests that once measurement differences are taken into account, the growth rates of new firms in New Zealand are broadly similar to the European OECD countries, but significantly lower than growth rates of new firms in the USA. The Eurostat comparison suggested that growth rates in New Zealand might actually be somewhat lower than in many European countries, but it is best not to infer too much from this comparison, given uncertainty around the impact that cleaning the Eurostat data of false entry and exit might have on observed growth rates. When looking at indicators of firm growth, one relevant factor to consider is the size of entering firms relative to incumbent firms. Other things being equal, it might be expected that if firms enter at a small size relative to incumbents, they are likely (if successful) to grow more quickly. Data from the OECD firm project provide some support for this view, suggesting that new firms in the USA and Canada tend to enter at a smaller size (relative to incumbents) than do new firms in European countries. (This pattern seems to be particularly evident in the manufacturing sector.) However, surviving new firms in the USA then grow very rapidly by comparison with European and New Zealand firms. Bartelsman et al (2003) interpreted this pattern as consistent with a more “experimental” approach to market entry in the USA, whereby firms enter small (and often at lower productivity), and then expand rapidly over time if successful. This in turn could be related to the lower costs of firm entry and exit in the USA (for example, administrative costs of setting up a business, costs of hiring and firing) by comparison with most European countries. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 28 The analysis in Section 5.2 above suggested that the size of entering firms in New Zealand, relative to incumbents, is at about the middle of the OECD range. Overall then, New Zealand firms seem to start at a moderate size (relative to incumbent firms), and then grow at a similar rate to new firms in European countries. North American firms seem to enter at a smaller size (relative to incumbents), and then grow rapidly if they survive. While New Zealand’s firm growth rates are not out of line with the OECD as a whole, it is perhaps of some interest that our growth rates appear more similar to European countries than to the USA. New Zealand, like the USA, has very low administrative barriers to business entry and exit, and the costs of hiring and firing in New Zealand are also relatively low by comparison with many European countries (World Bank, 2004). However, while rates of firm entry are high in New Zealand, New Zealand firms enter at a larger size (relative to incumbents) than do North American firms, and successful new firms grow at a modest pace, similar to firms in European countries. In light of this, it would be particularly interesting to know whether new firms in other Anglo-Saxon countries like Australia, the UK and Canada also grow rapidly in the way that US firms appear to do. Comparisons with these countries could shed some light on whether New Zealand is unusual in having modest firm growth rates despite a generally flexible business environment, or whether it is the USA that is unusual in having very rapid growth in new firms. Unfortunately, the data to answer this question were not readily available for the current paper, but this could be a question for future research. 6 Conclusions and policy implications This paper has undertaken an extensive comparative analysis of firm dynamics in New Zealand and other OECD countries. The paper has highlighted a range of measurement differences in the way that firm dynamics statistics are collected and reported on across countries, and has attempted to control for these measurement differences by obtaining new data for New Zealand that is more comparable to the data available for other OECD countries. The paper has also looked at a broad range of firm dynamics variables, including some (like firm growth rates and the size of entering and exiting firms) that have not been covered in depth in previous studies. One overriding conclusion that can be drawn from the analyses in this paper is that measurement differences are important. The criteria used to determine whether firms are included and excluded from the data – and in particular, the treatment of zero-employee and one-year firms – can have a substantial impact on measures of firm size, firm turnover rates, and firm survival and growth rates. This reinforces the need to be cautious when comparing indicators of firm dynamics and business demography across countries, and to try to understand and control for measurement differences before drawing conclusions. Overall, the findings in this paper suggest that once measurement differences are taken into account, New Zealand’s firm dynamics and business demographics are broadly within the OECD range. In particular, while our firms are generally at the smaller end of the size distribution, New Zealand no longer appears to be an outlier in terms of having very small firms relative to the rest of the OECD. The distribution of firms and employment in New Zealand is very similar to that in a number of benchmark countries, including Australia, Canada, Finland and Denmark. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 29 While New Zealand’s firm turnover (entry and exit) rates are still at the top of the OECD range even when measurement differences are controlled for, they are not substantially higher than turnover rates in countries like the USA and Canada which also have low barriers to business entry. Finally, the size of entering and exiting firms relative to incumbents, and the survival and growth rates of new firms, are also comparable to other OECD countries – although growth rates seem to follow a similar pattern to European countries, rather than the high rates of growth found in US firms. Although New Zealand’s firm dynamics appear to be generally within the OECD range, there are still some apparent areas of difference, which were highlighted in the paper. These include: relatively small average firm size in the manufacturing sector; large firms that are smaller on average than large firms in at least some other countries (eg, the USA and the UK); high firm turnover rates, although not as high as has previously been thought; and rates of growth similar to European countries, despite a business environment that appears to be more dynamic in other respects. Drawing policy implications from descriptive data at the aggregate level is difficult. However, the analyses in this paper do seem to offer some potential insights into a number of current policy issues. In general terms, the results are reassuring from a policy point of view as they suggest that New Zealand’s business dynamics are broadly in line with those of other OECD countries. Once measurement issues are taken into account, there is no obvious evidence that New Zealand firms face particular difficulties in terms of survival and growth, by comparison with firms in many other countries. In terms of more specific implications, one conclusion that can be drawn from the analyses in this paper is that policy interventions and/or policy issues that are based on a rationale that New Zealand has an unusually large proportion of small firms are probably not well founded. Areas of policy that are often discussed (at least in part) in these terms include: access to finance and the functioning of financial markets; compliance costs; the delivery and reach of business assistance programmes; and workplace training. All of these issues have been suggested as being potentially more important in New Zealand than in other countries due to the high proportion of small firms. For example, it has been suggested that the large proportion of small firms in New Zealand poses particular issues for financial markets, due to information asymmetries between borrowers and lenders that are more difficult to overcome efficiently when firms are small. It is also often argued that compliance costs are of more concern in New Zealand than in other OECD countries, due to the high proportion of small firms and the fixed costs associated with compliance. Finally, it is sometimes suggested that administering business assistance programmes and delivering workplace training programmes is a particular challenge in New Zealand due the small size of New Zealand firms. Generally speaking, the data do not support these conclusions. Of course this is not to argue that issues around access to finance, compliance costs, business assistance and workplace training for small firms are not important, or that they do not need to be addressed through policy. The data in this paper simply suggest that these problems are unlikely to be more acute in New Zealand than in a number of other OECD countries. While policy rationales based on the proportion of small firms appear to lack support given the findings in this paper, policy issues that relate to the apparently smaller average size of New Zealand’s large firms may still be worth considering. One relevant issue in this context could be the level of R&D activity, given that R&D tends to be concentrated in large firms. Although further analysis is needed on this point, it seems plausible that the WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 30 smaller size of New Zealand firms at the top end of the size distribution could be a constraint on R&D activity, and could in part explain our low levels of private sector R&D. This paper has highlighted several potential areas for future work on firm dynamics. An obvious next step would be to try to explain those remaining aspects of New Zealand’s firm dynamics where we still appear to differ somewhat from other countries. In particular, further work could look at the impact of issues such as particular regulations, the size of the domestic market and distance from overseas markets, sectoral composition of the economy, and business cycle effects on indicators of firm dynamics. In terms of specific issues of interest, one question that warrants further investigation is the relationship between firm size and performance in the manufacturing sector. The analysis in this paper suggested that New Zealand’s manufacturing firms do tend to be at the low end of the size distribution internationally, and the manufacturing sector has also generally performed poorly in terms of productivity growth (Black, Guy, and McLellan, 2002). While this in itself is no evidence of a causal link, it would be of interest to carry out further work on the relationship between scale and firm performance/productivity in the manufacturing sector. Another area that could be worth looking into further is the growth rates of new firms. While the analyses in this paper suggested that New Zealand’s growth rates are broadly in line with the European OECD countries, this could be interpreted as somewhat disappointing, given that New Zealand has higher levels of firm entry and exit and more flexible regulations around firm entry and hiring and firing than do most European countries. In light of this, it would be interesting to do further work on the growth rates of New Zealand firms (for example, as suggested earlier comparing growth rates in New Zealand to other non-European countries like Australia and Canada) to try and better understand how New Zealand’s growth rates compare internationally and whether there are regulatory or non-regulatory barriers to firm growth in New Zealand. Finally, there is also work that could be done to further improve the available New Zealand data and to address remaining measurement issues. Some of this work could be done now, while other improvements to the data will become possible in future with the development of the LEED database – for example, the capacity to clean the data of false entry and exit. This should allow more accurate comparisons to be undertaken on rates of firm and employment turnover, firm survival, and firm growth. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 31 References Bartelsman, Eric, Stefano Scarpetta and Fabiano Schivardi (2003) "Comparative analysis of firm demographics and survival: Micro-level evidence for the OECD countries." Paris, Organisation for Economic Co-operation and Development, Economics Department Working Paper No 348. <http://www.oecd.org/dataoecd/28/53/2494036.pdf> Black, Melleny, Guy, Melody and McLellan, Nathan (2003) "Productivity in New Zealand 1988 to 2002." Wellington, New Zealand Treasury, Working Paper No 03/06. <http://www.treasury.govt.nz/workingpapers/2003/twp03-06.pdf> Brandt, Nicola (2004) "Business dynamics in Europe." Paris, Organisation for Economic Co-operation and Development, Directorate for Science, Technology and Industry, Technology and Industry Working Paper 2004/1. <http://www.olis.oecd.org/olis/2004doc.nsf/43bb6130e5e86e5fc12569fa005d004c/d 7330a807018cccbc1256e55005051c7/$FILE/JT00159809.PDF> Carroll, Nick, Dean Hyslop, David Maré, Jason Timmins and Julian Wood (2002) "The turbulent labour market." Wellington, Department of Labour, Paper presented to New Zealand Association of Economists conference, 26-28 June, Wellington. <http://nzae.org.nz/conferences/2002/2002-Conference-Paper-16(2)-CARROLLTEXT.PDF> Johnson, Brian (1999) "Business dynamics 1987 to 1999." Wellington, New Zealand Treasury, Internal paper. MED (2003) "SMEs in New Zealand: Structure and dynamics." Wellington, Ministry of Economic Development. <http://www.med.govt.nz/irdev/ind_dev/smes/2003/smes2003.pdf> Mills, Duncan (2003) "Firm performance." Wellington, New Zealand Treasury, Presentation to the Treasury/Ministry of Economic Development Growth Seminar Series, August. Scarpetta, Stefano, Philip Hemmings, Thierry Tressel and Jaejoon Woo (2002) "The role of policy and institutions for productivity and firm dynamics: Evidence from micro and industry data." Paris, Organisation for Economic Co-operation and Development, Economics Department, Working Paper No 329. <http://www.olis.oecd.org/olis/2002doc.nsf/linkto/eco-wkp(2002)15> Simmons, Geoff (2001) "The impact of size and distance on New Zealand firm size, behaviour and performance." Wellington, New Zealand Treasury, Internal paper. Skilling, David (2001) "The behaviour and performance of NZ firms: Some preliminary findings." Wellington, New Zealand Treasury, Internal paper. World Bank (2004) "Doing business in 2004: Understanding regulation." Washington DC, World Bank. WP 04/11 | FIRM DYNAMICS IN NEW ZEALAND 32 Appendix Appendix Table 1 – Key data characteristics – New Zealand BDS, OECD firm-level project, and Eurostat data Data characteristic New Zealand BDS OECD firm-level project Eurostat Sector Coverage Main excluded sectors are agriculture and community services. Varies according to country – but main analyses generally exclude agriculture and community services. Some countries also exclude government sector (Portugal, Italy, Germany, USA). Uncertain – covers most or all sectors. Sample Period 1990 – present. Data used in current paper cover 1994-2001. Varies according to country. 1989-1994 for most analyses. 1997-2000 Measure of employment – employee vs “total” employment Publicly available data use “total employment” measure. Data in current paper use employee measure. Employee Employee Measure of employment – headcount vs FTE Publicly available data uses FTE. Data in current paper use headcount measure. Headcount Headcount Unit of analysis Enterprise and plant level data available. Data in current paper use enterprise. Enterprise Enterprise Employment threshold None if turnover threshold met. Otherwise > two fulltime employees. At least one employee (except Netherlands). None Turnover threshold >$30,000 per year None None (except UK) ‘True” entry and exit distinguishable from “false” (mergers, acquisitions etc)? No No Yes Treatment of one-year firms? Normally included. Data in current paper removes oneyear firms for some analyses. Excluded Uncertain but presumed included Sources: Statistics New Zealand, Carroll et al (2002), OECD/Bartelsman et al (2003), OECD/Brandt (2004)