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New businesses creating most net jobs

I attended a conference a few weeks ago, and one of the speakers made a casual comment about most, if not all, net new jobs being created by businesses under five years old. He was a very credible and highly regarded speaker, but he was also an American, and it’s possible he was talking about US data. But it set me wondering about the implications for the north east if his comment was directly translatable here…

There are three main propositions that occur to me from this – although I’m sure there are others
that I’ve not highlighted here. (This isn’t intended to be a statistical argument, more a personal
extrapolation of a theory.)

The first proposition centres on the obvious point that any region that is starting fewer new businesses is almost certainly creating fewer jobs. Whilst historically the north east has tended to appear towards the bottom of UK figures for numbers of businesses per head of population, most UK regions have had more businesses closing that than starting in the last couple of years, and the north east is following the same trend; north east figures for 2010 suggest the business closure rate was over 13% of total stock, whilst the birth rate was under 10%. So, proposition one: fewer new businesses equals fewer new jobs.

The second proposition centres on an acceptance that any region that wants to succeed economically – and to generate the social and wellbeing benefits that tend to go along with economic success – needs to have employment levels at the higher end of what is statistically normal. It is worth considering this for a moment, because one of the arguments generally made in favour of the north east is the quality of life, and many of us know people who are not in fullemployment who are actually quite happy. However as a general rule, health and wellbeing levels tend to correlate positively with high levels of employment, so proposition two is: successful regions tend to have a high majority of economically active adults.

The third proposition centres on business survival rates. Government statistics from 2010 suggest that the UK five-year survival rate for businesses born in 2005 and still active in 2010 was just over 44%. Variations across different industries and sectors were significant (between 33.6% and 55.5%), as were variations across regions (ranging between 39.7% and 54%). Businesses in the fields of health, and education, tend towards the top end of survival rates, with hotels, catering and hospitality towards the bottom. In general though, around half of all businesses started (depending on region and sector) survive to the five-year point. This reminds us that many years ago David Storey - and quite a few others since – stated confidently that only a very few small businesses were responsible for the creation of new jobs. So, proposition three: if we want to increase the number of jobs, we need to understand which new businesses will create the new jobs, and then make sure that – at the very least – we help them to move any barriers that are blocking their way.

This was posted in Bdaily's Members' News section by Dawn Cranswick .