Research shows new firms create most employment

New firms create more jobs than older firms according to new research by the Central Bank. The new study by Martina Lawless, an economic researcher at the bank, also suggests that there is no relationship between firm size and job creation.

Using 40 years of data, Ms Lawless finds that the relationship between a company’s age and its employment creation is consistent over decades.

The paper echoes findings in the US which have influenced the debate on how governments should support enterprise. In an era of high unemployment the paper has important implications for jobs policy in Ireland.

Its conclusions point to available resources being focused more closely on encouraging business start ups, removing obstacles to the creation of new businesses and identifying causes of new firms failing.

Business lending
Ms Lawless says policies to encourage early firm funding are important. This is all the more so in the context of the banking crisis and consistently low levels of new business lending.

Last summer, other central bank economists found that bank lending was not matching the demand for viable business investments.

Other factors that may have inhibited serial entrepreneurialism identified in the paper include Ireland’s bankruptcy laws and the limited access self employed people have to the social welfare system.

The research would also appear to answer a long-standing debate about the relationship between employment and firm size. In the past it was argued that small firms are more important for job creation than large ones. The new research suggests that there is no relationship between firm size and job creation.

The paper also pointed out that even in the worst period of the recession, job creation continued, albeit at a historically low rate. Over the past 40 years, the annual new job creation rate was 10 per cent of total employment. In the 2008-10 period it fell to half that rate.

The paper is titled Age or Size? Determinants of Job Creation .