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Study finds high-growth firms crowd out competition for talent

High Growth Firms

22 January 2019

  • ·Joint Aston University study shows higher numbers of fast-growing firms in a region can lead to net loss of jobs, especially in rural areas
  • ·But clusters of companies that combine job growth with productivity gains have a positive impact from ‘spillover’ effects
  • ·Policymakers need to be aware of trade-offs from promoting job and productivity growth at the same time

The UK’s efforts to boost productivity while ironing out regional inequalities in job creation may be fundamentally at odds, according to a joint study of so-called ‘gazelle’ firms by Aston University and the London School of Economics.

The findings, based on a study of 6.25m firms over a 17-year period by the Enterprise Research Centre (ERC), shed new light on the ‘spillover effects’ high-growth firms have on other businesses in their region.

In recent years, policymakers have looked to high-growth firms – dubbed ‘gazelles’ – as a way of tackling the UK’s chronic productivity problem. Despite accounting for less than 5% of businesses, these companies create around half of all new jobs and typically show higher levels of productivity.

But the research shows that high-growth firms should actually be broken down into two distinct camps – a ‘traditional’ group with fast employment growth (20% growth per year over three years, as defined by the OECD) and a separate group of ‘super growth heroes’ that boost their productivity by growing turnover faster than headcount.

The fast-employment group – spread relatively evenly across the country - was found to hoover up jobs from slower-growing firms in the same region, in what the researchers call a “crowding-out competition effect”.

The study by Professor Jun Du of Aston University and Dr Enrico Vanino of the London School of Economics tracked the experiences of 6.25m firms over a 17-year period. The researchers focused their attention on the 1m manufacturing and professional services firms that experienced an episode of fast growth.

Professor Jun Du said:

“This research shows that the policy goals of job creation and productivity growth are not always complementary at the regional and sector level.

“With the government’s industrial strategy seeking to rebalance the UK economy, policymakers nationally and locally need to be mindful that while encouraging clusters of fast-growth firms can bring productivity benefits to whole supply chains, some regions and industries with acute skills shortages could see unintended consequences. 

“We see this particularly in parts of Britain that are distant from major urban centres, with a hollowing-out effect when it comes to net job creation, underlining the need for place-based growth strategies that take account of local circumstances.”

The ERC has also published new research highlighting how high-growth episodes in cohorts of firms of similar age is more important than counting the number of high-growth firms (HGFs) in arbitrary three-year periods – the standard definition used by the OECD.

A key finding from following a cohort of firm start-ups from 1998 to 2013 is that the likelihood of an HGF having a further episode of high-growth declines steeply as time elapses. Over the long term, these firms often see their annual average growth rates reduce to the level of firms never classed as HGFs.

Lead researcher and ERC Deputy Director, Professor Mark Hart, said:

“Policymakers need to be careful not to over-focus on trying to 'create' more HGFs, but on learning from their experiences of episodic growth over longer time periods to understand firm growth better.”

ENDS

Notes to the editor

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About Aston University

Founded in 1895 and a University since 1966, Aston is a long established university led by its three main beneficiaries – students, business and the professions, and our region and society. Aston University is located in Birmingham and at the heart of a vibrant city and the campus houses all the university’s academic, social and accommodation facilities for our students.  Professor Alec Cameron is the Vice Chancellor & Chief Executive.

About the Enterprise Research Centre

ERC is the UK’s leading independent research institute on the drivers behind the growth and productivity of small and medium-sized enterprises (SMEs). It is funded by the Department for Business, Energy and Industrial Strategy (BEIS), the Economic and Social Research Council (ESRC), Innovate UK, The Intellectual Property Office (IPO) and the British Business Bank (BBB).

ERC is producing the new knowledge around SMEs that will allow us to create a business-friendly environment nationwide, grounded in hard evidence. We want to understand what makes entrepreneurs and firms thrive so we can spread the lessons from best practice and make the UK a more successful economy.

The Centre is led by Professors Stephen Roper of Warwick Business School and Mark Hart of Aston University, Birmingham. Our senior researchers are world-class academics from both Aston and Warwick Universities as well as from our partner institutions which include Imperial College, Queens University Belfast and the University of Strathclyde.

http://www.enterpriseresearch.ac.uk

For media inquiries in relation to this release, call Simon Glover, Press & PR Officer, on 0121 204 5159 or email s.glover@aston.ac.uk. Alternatively, email pr@aston.ac.uk

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