Firm Dynamics and Job Creation

The seminar was led by World Bank consultant Sara Johansson. She highlighted the need for a dynamic, productive and internationally competitive private sector for better employment opportunities and economic growth and welfare. She emphasized the importance for a diagnostic exercise in order to better grasp the role of the private sector in providing jobs. A diagnostic exercise can be conducted through analyzing firm registry data looking specifically at: where the jobs in the formal sector are; (ii) where and how firms and jobs are being created; (iii) entrepreneurship activity; and (iv) the key constraints firms face?
This diagnostic exercise utilizing firm registry data was conducted in the former Yugoslav Republic of Macedonia. The results illustrated a complete snapshot of what kinds of firms are growing, entering and exiting. Findings showed that there is a lot of churning, new firms are created, but quickly destroyed at a much higher rate than in advanced economies. This pattern is also visible in employment, many employees enter the formal sector, but also exit at very high rates.  In addition, the diagnostic provided a narrative of stunted growth- while firms are growing in size, productivity growth is sluggish. In contrast, the “gazelle” firms- the young small firms that create most of the employment- exist and are the ones creating most of the jobs every year.
Other results revealed that entrepreneurship is necessity driven rather than opportunity driven. Although the former Yugoslav Republic of Macedonia has made progress on many fronts, two areas that need further attention are competition policy and governance. For example, firms find that competition from the informal sector is one of their largest challenges, undoubtedly an issued linked to governance and enforcement.
This type of analysis can be implemented and utilized in other countries and can shed light on firm dynamics in terms of entry, exit and employment growth by firm age, sector, size and productivity level.

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