“Firm Dynamics and Job Creation in Turkey"

I.Atiyas, O.Bakis and Y.K.Orhan

II. Girişim İstatistikleri Analizi Çalıştayı27 Mart 2015

Motivation

• We use TurkStat business registers which covers all firms in the business sectors of Turkey to investigate patterns of firm dynamics and job creation.

• The paper tries to answer the following types of questions: – How does employment growth vary across groups of firms with different size

and age? – How does entry and exit vary across groups of firms with different sizes? – What is the survival and job growth performance of new entrants? – What percentage of young or small firms make successful transitions into

being mature large firms? – What happens to firm size as firms become older?

Sectoral coverage

• We use only sectors covered by Structural Business Statistics (SBS). • Differently from the SBS approach, we cover all firms, even those which

survived less than 6 months. => better idea of entry and exit. • A small fraction of the TurkStat business registers (139,000 out of

3,495,000, in 2012, approximately 4 % ) are surveyed by the Annual Industry and Service Statistics (AISS).

• The panel component (20+) in the AISS is about 70,000 (2 %).

Number of firms and total employment (1000)

-Total number of firms actually has not increased much between 2005 and 2012- Significant reductions in both the number of firms and employment in 2009 and 2010.- 2 issues: informality, coverage

year # of firms empl (AISS) empl (HLFS) AISS/HLFS total empl. (HLFS)2005 3402 10274 14913 0.69 200662006 3234 10261 15516 0.66 204232007 3264 11538 15871 0.73 207382008 3522 15228 16177 0.94 211942009 3314 12912 16037 0.81 212772010 3123 12703 16911 0.75 225942011 3513 15162 17967 0.84 241102012 3496 16521 18724 0.88 24821

Distribution of firms and employment according to size (2005, 2012)

share of employment share # of firms

size 2005 2012 2005 2012 1-2 31.23 18.70 88.93 76.00 3-4 4.80 7.58 4.29 10.68 5-9 7.51 9.99 3.49 7.31

10-19 7.73 9.49 1.74 3.34 20-49 10.66 11.39 1.03 1.74 50-99 5.91 6.85 0.26 0.47

100-249 8.43 9.71 0.17 0.30 250-499 5.95 6.52 0.05 0.09

500+ 17.79 19.76 0.04 0.06

-Significant decrease in the share of 1-2-Can not separate 1 and 2 because of coding problems

Distribution of employment by age (2005, 2006 and 2012)

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 25 30 35 40+

0.0

5.0

10.0

15.0

20.0

25.0

2005 2006 2012

- Firms below age 10 account for 60 to 80 % of total employment- Distribution shifted towards the right between 2005 and 2012

Distribution of employment by size and age 2005 and 2012 (%)

Micro: 1-9 Small: 10-49 Medium: 50-249 Large: 250+

Young: <10 Mature: >=10

-Share of young decreases in each size group!

Entry and Exit

• E(t) = # of firms not observed in (t-1) but observed in t.• C(t) = # of firms that are observed in the data set both in (t-1) and (t).• X(t) = # of firms observed in (t-1) but not observed in (t).• T(t) = Total number of firms in year t.

• Note that the total number of firms can be written – T(t) = E(t) + C(t), considering t and t-1– T(t) = C(t+1) + X(t+1) , considering t and t+1

• Entry and exit rates are defined, for period t, as follows:– Entry rate (ER) = E(t)/T(t-1)– Exit rate (XR) = X(t) /T(t-1)

Entry and exit rates (2006-2012)

E C X ER EX

2006 411256 2822520 579613 12.1 17.0 2007 366397 2897690 336086 11.3 10.4 2008 328735 3192768 71319 10.1 2.2 2009 399540 2914849 606654 11.3 17.2 2010 132783 2990600 323789 4.0 9.8 2011 833741 2679666 443717 26.7 14.2 2012 461539 3034226 479181 13.1 13.6

E: No. of entrants, C: No. of continuing firms; X: No. of exitors. ER: Entry rate; EX: Exit rate. See text for definitions.

ER > XR in 2008, 2011ER < XR in 2006, 2009, 2010ER ~ XR in 2007, 2012.

Entry and exit rates by sector (2006-2012 averages)

ER XR

MIN 10.99 8.79 MAN 11.88 10.81 PU 11.71 2.88 CONS 13.85 10.13 WRT 11.90 12.04 HR 17.13 15.38 TSC 9.13 9.59 FIRE 19.27 14.70 CSPSGS 12.33 10.94

-Generally ER > XR

Percentage of entrants at age 0 and 1 and their share in employment

Year age

% of entrants

% of job creation by entrants

2006 0 91.0 91.6 2006 1 4.3 4.0 2007 0 93.5 89.1 2007 1 4.2 3.0 2008 0 71.2 73.5 2008 1 5.1 5.7 2009 0 62.4 69.4 2009 1 6.5 9.5 2010 0 73.8 32.6 2010 1 9.1 4.4 2011 0 43.6 35.3 2011 1 29.0 34.1 2012 0 77.1 71.3 2012 1 4.8 2.5

-Before 2008, almost all entrants have age 0 or 1 (about 95 %)-After 2008 the share of firms aged 0 or 1 in entrants is about 80 %. Data problems ? Better detection ?

Distribution of entrants by size

2006 2007 2006-2012 total

Share in no. of firms

share in job creation

Share in no. of firms

share in job creation

Share in no. of firms

share in job creation

1-2 96.41 63.27 91.00 37.46 90.24 41.09 3-4 1.75 3.72 3.48 4.63 4.34 6.07 5-9 0.98 3.95 2.81 7.19 3.13 8.42

10-19 0.42 3.57 1.86 9.59 1.53 8.47 20-49 0.26 5.28 0.50 5.96 0.51 6.39 50-99 0.10 4.50 0.16 4.30 0.13 3.78

100-249 0.06 5.43 0.11 6.53 0.07 4.58 250-499 0.02 3.51 0.04 5.56 0.02 2.85

500+ 0.01 6.77 0.03 18.78 0.01 18.34 total 100.00 100.00 100.00 100.00 100.00 100.00

-Firms with 1-2 employees account for more than 90 % of all entrants.-Firms with 1-2 employees account for 37-63 % of all jobs created by entrants.

Total job creation and destruction (2006-2012 total)

job creation

job destruction

net job creation

entry 7,055,375 0 7,055,375 continuing 14,464,844 8,902,686 5,562,158 exit 0 6,371,153 -6,371,153

- Job creation by entrants should be seen as the UPPER bound !!!

Job creation and destruction by size (2006-2012 total)

Size job creation job destruction

net job creation (%)

1-2 8,096,439 5,082,960 3,013,479 0.48 3-4 1,446,045 1,081,899 364,146 0.06 5-9 1,833,141 1,274,910 558,231 0.09

10-19 1,799,899 1,320,876 479,023 0.08 20-49 1,762,458 1,195,173 567,285 0.09 50-99 1,199,157 746,043 453,114 0.07

100-249 1,566,816 1,034,170 532,646 0.09 250-499 969,049 711,051 257,998 0.04

500+ 2,847,215 2,826,757 20,458 0.00

Small firms create most of the new jobs- Firms with 1-2 employess account for 48 % of net job creation- Firms with 1-19 employess account for 71 % of net job creation

Survival rates of cohorts of entrants / all firms

0 1 2 3 4 50

20

40

60

80

100

120

2006 cohort2007 cohort2008 cohort

0 1 2 3 4 5 6 70

20

40

60

80

100

120

2005 firms

2006 firms

2007 firms

- Survival rate is about 50 % after 5 years for new entrants.

- Survival rate is about 57 % after 5 years for all firms

5 year transition matricesN exit 1-2 3-4 5-9 10-19 20-49 50-99 100-249 250-499 500+

1-2 3,025,360 46.0 49.9 2.3 1.2 0.4 0.2 0.0 0.0 0.0 0.0 3-4 145,957 23.9 34.0 22.1 15.3 3.6 0.9 0.1 0.0 0.0 0.0 5-9 118,900 19.2 19.1 14.7 30.4 12.5 3.6 0.5 0.1 0.0 0.0

10-19 59,172 15.7 11.4 6.5 18.3 29.7 15.6 2.1 0.6 0.1 0.0 20-49 35,176 14.3 5.4 2.4 5.8 16.7 39.1 12.0 3.8 0.5 0.1 50-99 8,816 13.9 1.1 1.2 3.0 6.5 18.9 29.9 21.8 2.8 0.9

100-249 5,705 13.3 0.7 0.5 1.2 3.2 6.7 12.7 45.5 12.6 3.5 250-499 1,765 13.5 0.3 0.2 0.6 2.0 3.0 4.1 18.0 38.9 19.5

500+ 1,282 15.8 0.3 0.0 0.1 0.2 1.2 1.8 4.8 10.2 65.5

All firms 2005

2006 entrants

N exit 1-2 3-4 5-9 10-19 20-49 50-99 100-249 250-499 500+ 1-2 396,488 47.8 45.3 3.1 2.4 1.1 0.4 0.0 0.0 0.0 0.0 3-4 7,188 31.6 16.5 14.5 20.2 11.1 5.5 0.4 0.1 0.0 0.0 5-9 4,017 31.5 12.2 6.3 18.7 17.7 10.6 2.5 0.5 0.0 0.0

10-19 1,720 30.1 9.5 2.9 8.5 19.5 19.9 6.9 2.2 0.2 0.2 20-49 1,078 27.1 4.4 1.2 3.5 8.6 21.3 20.4 10.4 1.7 1.4 50-99 428 20.3 0.2 0.5 1.4 4.0 6.8 34.1 27.8 2.8 2.1

100-249 236 17.8 0.4 0.0 0.0 1.3 5.5 9.3 36.9 22.9 5.9 250-499 67 22.4 0.0 1.5 0.0 1.5 0.0 7.5 10.4 43.3 13.4

500+ 34 23.5 0.0 0.0 0.0 0.0 0.0 2.9 11.8 17.6 44.1

-Exit rate declines by size-More persistence for all firms, compared to new entrants-New entrants’ exit rates are higher in each size group

Survivors’ average size after entry 2006 entrants

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2006 2007 2008 2009 2010 2011 2012

survivors

true survivors

-average size of 2006 entrants is about 1.5-2 in the first year and grew to about 4-4.5 in 2012. -True survivor: never exists

Firms' relative size over the life cycle in Manufacturing

0

1

2

3

4

5

6

7

<5 5-9 10-14 15-19 20-24 25-29 30-34 35-39 >=40

USA

MEX

IND

TUR

USA: 2002, IND: 1994-95, MEX: 2003, TUR: 2012

- Size constraints ? Suboptimal investment level by firms ? Lack of creative destruction? Financial constraints ? etc.

Relation between employment growth and size/age

0 1 2-3 4-5 6-7 8-9 10-11

12-13

14-15

16-17

18-19

20-24

25-29

30-34

35-39 -0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Age with average size controls

0-2 3-4 5-9 10-19 20-49 50-99 100-249 250-499

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

base year size

av. size

av. size with age controls

- No systematic relationship between net job growth and firm size once we control for firm age

Relation between employment growth and size/age (full size-age interactions)

Average size with age controls

Age with average size controls

Conclusion

• Important share of small and young firms (1-2) in total employment• Important role of small and young firms (1-2) in job creation• Variation in exit and entry rates across years and sectors• Survival rate of new entrants is slightly lower than all firms (50 % vs 57 %

for 5-year survival rates)- Exit rates are negatively correlated with size- New entrants’ exit rates are higher in each size group- No systematic relationship between net job growth and firm size once we

control for firm age- Negative relationship between net job growth and firm age after

controlling for firm size.