OECD DSTI, Meeting of the Working Party on Industry Analysis (WPIA), 6-7.2017

1. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Micro-level dynamics of output, employment and
productivity growth: the role of High Growth
Firms (HGFs)
Mika Maliranta (ETLA & University of
Jyväskylä)
Paavo Hurri (University of Jyväskylä)
OECD DSTI, Meeting of the Working Party on
Industry Analysis (WPIA), 6-7.2017

2. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Conclusions
1) A very small number of HGFs has a substantial contribution to
output growth during 3-year period
2) Contribution is reasonable also during the following 3-year period.
• But indication of selection, reallocation and delayd productivity effects
3) Contribution comes from employment growth
4) Productivity growth effect is significantly negative because HGFs
have very weak productivity growth rates
5) HGFs have high productivity level and they increase labor
input share => contribute to creative destruction positively via
between effect
• Contribute to creative destruction also during following period
6) HGFs have high productivity level but low productivity
growth => contribute productivity dispersion negatively
(contribute to convergence between firms)

3. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Micro-level dynamics of output growth
• Aggregate output growth =
+ net employment growth
+ aggregate labor productvity growth
• Net employment growth =
+ Job creation
– job destruction
• Aggregate productivity growth =
+ average productivity growth within firms
+ productivity-enhancing restructuring between firms
+ entry
+ exit
• Each firm contributes to aggregate output through all
these components of micro-level dynamics

4. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
High Growth Firms (HGF)
• ”Official” definition of HGFs by Eurostat-OECD
– Average annualised employment growth 20 % over 3-year
period
– At least 10 employess in the beginning => may create bias
when comparisons are made between size groups
– The cut-off limit in our analysis: the average employment in
year t and t+3
• Unit: legal unit
– Problem: includes both organic and inorganic growth
– Advantage: productivity measurement can be done
(relatively) reliably
• We interested the contribution
– During the growth period and
– After the growth period

5. Aggregate
output
growth
Net job
creation
Aggregate labor
productivity
growth
Job
creation
Job
destruction
Productivity
growth within
firms
Productivity-
enhacing
restructuring
between
staying firms
Entry
Contribution
ofHGFs Aggregate
output
growth
Net job
creation
Aggregate labor
productivity
growth
Job
creation
Job
destruction
Productivity
growth within
firms
Productivity-
enhacing
restructuring
between
staying firms
Exit
Entry
Exit
Micro-leveldynamicsofemployment
andproductivitygrowth
Growth period from t to t+3 Post growth period from t+3 to t+6

6. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Methods
• Employment:
• Net employment growth rate = job creation rate minus job
destruction rate
• Labor productivity: a version proposed by
ii ii
LL
NETR
L L


 

Kauhanen, A. ja Maliranta, M. (2017). “The
roles of job and worker restructuring in
aggregate wage growth dynamics”. Review of
Income & Wealth, in press. DOI
10.1111/roiw.12315

7. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Labor productivity
decomposition
 
 
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, 1 0
, ,
1 0
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1
0 0
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, 1 0
, ,
1 0
1 1 1
1
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x C i i
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C
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C C
ix
C
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C
x
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
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0
1
C
i
C
i X
z Z
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 

Y
Z
L

i
i
L
s
L

(Labour productivity)
(Labour input share)
(aggregate productivity growth rate)
(weighted average productivity growth rate)
i ii
Z s Z  g
(between component among continuing
firms)
(entry effect)
(exit effect)
(”convergence term”, cross term of
within component)
(other cross terms)

8. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Data
• Register-based panel data on firms
– Combines registers (on small firms) and firm surveys
– Cover basically all Business sector firms
• We focus on business sector, manufacturing and private
services
• We include firms that have at least one person (in FTE
units)
• We focus on stayers in period 2008-2011,
– but include exits in the following period 2011-2014
• We exclude outliers in terms of productivity, by using a
procedure similar to Hyytinen & Maliranta (2013)

9. Classification of firms
• HGFs:
• Small HGFs:
• Moderate growth, large:
• Moderate growth, small:
• Moderate decline, large:
• Moderate decline, small
• Fast decline, large
• Fast decline, small
10 & 20%iL
L
L

 
10 & 20%iL
L
L

 
10 & 20% 0%iL
L
L

  
10 & 20% 0%iL
L
L

  
10 & 0 20%iL
L
L

   
10 & 0 20%iL
L
L

   
10 & 20% iL
L
L

  
10 & 20% iL
L
L

  

10. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Number of firms
in 2008
Number of
firms in 2011
Number of exits
between 2011 and 2014 Exit rate
Number of firms
in 2014
HGFs 211 211 14 6,6 % 197
HFFs, small 5 879 5 879 41 0,7 % 5 838
Moderate growth, large 899 899 92 10,2 % 807
Moderate growth, small 24 774 24 774 2 551 10,3 % 22 223
Moderate decline, large 1 095 1 095 102 9,3 % 993
Moderate decline, small 24 995 24 995 5 726 22,9 % 19 269
Fast decline, large 150 150 46 30,7 % 104
Fast decline, small 4 213 4 213 1 933 45,9 % 2 280
Total 62 216 62 216 10 505 16,9 % 51 711
Number of firms in our data

11. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
HGFs 2,9 4,1 -1,2 -0,6 -0,5 0,0 2,3
HFFs, small 2,4 3,5 -1,2 -0,1 -0,1 0,0 2,3
Moderate growth, large 2,7 3,6 -0,9 -1,3 -1,3 0,0 1,4
Moderate growth, small 1,6 3,4 -1,8 -1,6 -1,3 -0,3 0,0
Moderate decline, large -9,7 -5,8 -3,9 -5,6 -3,5 -2,1 -15,3
Moderate decline, small -2,8 -2,7 -0,1 -2,4 -2,2 -0,3 -5,2
Fast decline, large -3,0 -4,1 1,1 -0,2 -0,4 0,3 -3,2
Fast decline, small -1,5 -2,1 0,6 -0,3 -0,3 0,0 -1,9
TOTAL -7,5 0,1 -7,6 -12,2 -9,7 -2,5 -19,6
Net job
creation
Output
growth
Growth period 2008-2011 Following period 2011-2014 2008-2014
Aggregate
productivity
Output
growth
Net job
creation
Aggregate
productivity
Cumulative
growth
Contribution of HGFs (and other firm
groups) to output growth
in Finnish Business Sector

12. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Contribution to employment by firm
groups
HGFs 4,1 4,1 0,9 1,5 -0,5 3,6
HFFs, small 3,5 3,5 1,5 1,6 -0,1 3,4
Moderate growth, large 3,6 3,6 2,1 3,4 -1,3 2,3
Moderate growth, small 3,4 3,4 2,6 3,9 -1,3 2,1
Moderate decline, large 5,8 -5,8 1,3 4,7 -3,5 -9,2
Moderate decline, small 2,7 -2,7 1,5 3,7 -2,2 -4,8
Fast decline, large 4,1 -4,1 0,1 0,5 -0,4 -4,5
Fast decline, small 2,1 -2,1 0,3 0,7 -0,3 -2,4
Total 14,7 14,6 0,1 10,2 19,9 -9,7 -9,6
2008-2011 2011-2014
Job
creation
Job
destruction
Net
growth
Job
creation
Cumulative
growth
Job
destruction
Net
growth
2008-2014
Panel A: Contribution by firm groups, %-points

13. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Growth in employment by firm groups
Job
creation
Job
destruction
Net
growth
Job
creation
Job
destruction
Net
growth
Cumulative
growth
HGFs 113,8 113,8 15,0 23,7 -8,7 100,6
HFFs, small 86,5 86,5 22,4 23,6 -1,2 81,4
Moderate growth, large 15,9 15,9 8,4 13,7 -5,3 11,1
Moderate growth, small 20,1 20,1 13,1 19,8 -6,7 13,6
Moderate decline, large 18,6 -18,6 4,7 18,0 -13,2 -31,7
Moderate decline, small 17,5 -17,5 11,0 27,1 -16,1 -33,3
Fast decline, large 114,3 -114,3 6,2 38,3 -32,1 -134,9
Fast decline, small 85,3 -85,3 24,5 50,4 -25,9 -105,9
Total 14,7 14,6 0,1 10,2 19,9 -9,7 -9,6
2008-2011 2011-2014 2008-2014
Panel B: growth rates within groups, %

14. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Contributions to aggregate labor productivity
growth by firm groups, %-points
HGFs -1,2 -1,0 0,5 -0,7 0,0 0,0 -0,2 0,4 0,1 -0,4 0,0
HFFs, small -1,2 -0,7 -0,4 -0,1 0,0 0,0 -0,2 0,0 0,2 -0,1 0,0
Moderate growth, large -0,9 -1,1 -0,3 0,4 0,0 0,0 -0,8 0,3 0,2 0,3 0,0
Moderate growth, small -1,8 -1,5 -0,3 0,0 0,0 -0,3 -0,9 0,2 0,3 0,1 0,0
Moderate decline, large -3,9 -1,6 -1,3 -1,1 0,0 -2,1 -1,6 -0,2 -0,1 -0,2 0,0
Moderate decline, small -0,1 -0,7 0,4 0,1 0,0 -0,3 -1,0 0,2 0,5 0,1 0,0
Fast decline, large 1,1 -1,2 1,4 0,9 0,0 0,3 0,2 0,0 0,1 0,0 0,0
Fast decline, small 0,6 -0,1 0,4 0,2 0,0 0,0 -0,1 0,0 0,1 0,0 0,0
Total -7,6 -7,7 0,5 -0,4 0,0 -2,5 -4,7 0,9 1,3 0,0 0,0
Convergence
term
Aggregate
Other
terms
Convergence
term
Exit
Between
firms
Within
firms
Panel A: Contributions by firm groups, %-points
Period 2008 - 2011 Following period 2011 - 2014
Other
terms
Aggregate
Within
firms
Between
firms

15. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
HGFs -33,7 -27,1 13,7 -20,5 0,2 -0,4 -3,0 6,5 1,6 -5,7 0,1
HFFs, small -28,6 -16,0 -8,8 -3,6 -0,1 0,4 -2,3 0,3 3,3 -0,9 0,0
Moderate growth, large -4,1 -4,8 -1,1 1,8 0,0 0,2 -3,2 1,2 0,9 1,3 0,0
Moderate growth, small -10,7 -8,6 -1,8 -0,3 0,0 -1,3 -4,8 1,0 1,9 0,5 0,0
Moderate decline, large -12,6 -5,1 -4,1 -3,4 -0,1 -8,2 -6,2 -0,9 -0,3 -0,8 0,0
Moderate decline, small -0,7 -4,3 2,8 0,7 0,0 -1,7 -7,5 1,3 3,7 0,7 0,0
Fast decline, large 29,4 -34,8 37,7 25,9 0,6 19,8 11,8 0,5 4,2 3,4 0,0
Fast decline, small 23,2 -2,1 18,1 6,9 0,3 -0,7 -8,6 -1,5 9,0 0,4 0,0
Total -7,6 -7,7 0,5 -0,4 0,0 -2,5 -4,7 0,9 1,3 0,0 0,0
Within
firms
Aggregate Exit
Between
firms
Within
firms
Other
terms
Convergence
term
Between
firms
Aggregate
Other
terms
Convergence
term
Panel B: Micro-level components of labour productivity growth within firm groups (normalized contributions), %
Period 2008 - 2011 Following period 2011 - 2014
Micro-level components of aggregate
productivity growth within groups, %
(normalised by employment share as in
Hyytinen & Maliranta (2013))

16. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Convergence term and productivity
dispersion
 , 1 0x C i i i
i
i C i
z z z Z
s
z Z
  
 
 

t t+3t-3
Productivity
t+6

17. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Frontier is escaping from the followers?
Productivity dispersion, std(lnLP)
(within 17 Business sector industries)

18. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Productivity dispersion between firms and
convergence term within industries
(ln( / ))std VA L

19. ELINKEINOELÄMÄN TUTKIMUSLAITOS
THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY
Conclusions
1) A very small number of HGFs has a substantial contribution to
output growth during 3-year period
2) Contribution is reasonable also during the following 3-year period.
• But indication of selection, reallocation and delayd productivity effects
3) Contribution comes from employment growth
4) Productivity growth effect is significantly negative because HGFs
have very weak productivity growth rates
5) HGFs have high productivity level and they increase labor
input share => contribute to creative destruction positively via
between effect
• Contribute to creative destruction also during following period
6) HGFs have high productivity level but low productivity
growth => contribute productivity dispersion negatively
(contribute to convergence between firms)