Many OECD economies have been confronted since well before the crisis with sluggish productivity growth. In the aftermath of the crisis, job creation has also stalled and has become an important policy issue. Business dynamics – entry and expansion of successful businesses, and the contraction and exit of the least productive ones – are at the core of the creative destruction process, resource reallocation and productivity growth. To address these issues, the OECD Directorate for Science, Technology and Industry has embarked on a project on dynamics of employment (“DynEmp”).
The first phase of the project, developed under the aegis of the Committee on Industry, Innovation and Entrepreneurship and the Working Party on Industry Analysis, and with the invaluable support of the DYNEMP network, led to the collection of an innovative database based on firm-level sources which presents a detailed portrait of the business structure and dynamics of 17 OECD countries plus Brazil over the period 2001-11.
Analysis of the new database demonstrates that, among small and medium-sized enterprises (SMEs), young firms play a central role in creating jobs and enhancing growth and innovation. Public policies can help unleash the growth potential of young, innovative firms by enabling them to experiment with new business models and by fostering the reallocation of resources towards the most productive firms. Structural reforms – such as well-functioning product, labour and capital markets as well as bankruptcy laws that do not overly penalise failure – are essential in this regard.