Small Businesses Create Most Jobs

May 19 2010 - Recent research from the Globalisation and Economic Policy Centre (GEP) at the University of Nottingham found that small businesses employing less than 100 workers account for 65 per cent of new British jobs created in an average year.

Co-author Dr Peter Wright, associate professor of economics, said:

"There has always been a discussion about whether small entrepreneurial firms or large firms are more important in terms of job creation. It's clear from this research that small companies employ a significant proportion of the workforce and account for most new jobs.

"Although their failure rates are higher, they certainly have more of a role to play than many economists have previously recognised. Therefore if the government could identify why so many of these firms fail then it could have a significant impact on net job creation."

Previous research from GEP found that Britons who become unemployed as a result of company failure experience an average income reduction of about 50 per cent in the first year. The effect remains detectable five years years later, with incomes significantly lower than those earned by individuals who have remained in employment.

In the current study, researchers analysed data from the Office for National Statistics' Inter-Departmental Business Register for the period 1997-2008 and found that an average of 53 000 jobs a week were created in the private sector compared to 47 000 lost (2.6 million compared to 2.35 million annually).

Researchers found that small firms employed between 38 and 52 per cent of all workers. They accounted for 65 per cent of jobs created and 45 per cent of those lost. In the service sector the comparable figures were 15.6 per cent of jobs created and 13.6 per cent lost. The manufacturing sector declined over the period (10 per cent created and 13.7 per cent lost).

Peter Wright commented:

"These relative rates reflect the continuing decline in manufacturing, which was shrinking every year. The difference in the growth rates of the two sectors is largely because of differences in the creation rate rather than destruction."

The researchers found manufacturing suffered the most rapid contraction in English regions (the North East, West Midlands and London). The North West, Scotland, the East of England, Yorkshire and Northern Ireland experienced the fastest expansion in the service sector.

Peter Wright concluded:

"People might be surprised by our overall figures, but they show how dynamic the UK employment market really is. It's not necessarily a bad thing for the economy, but it does mean there are likely to be many people changing jobs involuntarily.

"That may involve considerable adjustment costs and also has important implications in terms of training provisions. Many workers will need to change or update their skills regularly to stay in work and maintain income levels in such a dynamic market."

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