Firm dynamics and job creation in the UK

A recurring theme in the discussion of policies to stimulate economic recovery in the UK is a desire to unlock the growth potential of the private sector. We are motivated here by a very simple question – “what types of firms create the most jobs in the UK economy?” One popular answer to this question has been High-Growth Firms (HGFs). These firms represent only a small minority the ‘Vital 6%’ of the UK business population yet have a disproportionate impact on job creation and innovation. We re-visit the discussion launched by the 2009 NESTA reports, which identified the 6% figure and, using more recent data, confirm the headline conclusion for job creation: a small number of job creating firms (mostly small firms) are responsible for a significant amount of net job creation in the UK. Adopting our alternative, preferred, analytical approach, which involves tracking the growth performance of cohorts of start-ups, this conclusion still holds. However, we find an even smaller number of job creating firms responsible for a very significant proportion of job creation. We conclude by considering the question – “what are the implications for policy choices?”