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Dynamics of the Business Population

Dynamics of the Business Population. Presented by. Patrizia Cella ISTAT Italy. Contents. Part 1 User needs Business Demography European Project The BD as product of the Business Register Definition of enterprise . Contents. Part 2

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Dynamics of the Business Population

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  1. Dynamics of the Business Population

  2. Presented by • PatriziaCella • ISTAT Italy

  3. Contents Part 1 • User needs • Business Demography European Project • The BD as product of the Business Register • Definition of enterprise

  4. Contents Part 2 • The process of identification: the Real Enterprise Births • The Continuity rules in practice (the Italian approach) 2. The process of identification: the Real Enterprise Deaths • The estimation method (Italian approach) 3. The process of identification: Surviving Enterprises

  5. Contents Part 3 • The BD based on employment • The identification of employerbirths/deaths, High growth and Gazelles • The OECD EntrepreneurshipIndicators Project (EIP) Part 4 Business Demography Indicators

  6. Part 1User needs The growing demand of information on mechanisms that feed the economic growth highlighted the need of new tools of analysis: one of these is the Business Demography User needs There are two policy areas:1) Enterprise policy2) Employment policy

  7. Part 1User needs • One of the aims of the European enterprise policy is to develop conditions that facilitate the creation of new companies and enhance the possibilities for growth of the existing ones • To reach this goal: - need of business demography statistics over time as indicator of entrepreneurship and entrepreneurial dynamism

  8. Part 1Eurostat and OECD Project Actually the business demography is a core element of the OECD’s Entrepreneurship Indicators Project (EIP), where the OECD and Eurostat are collaborating to develop a framework for the regular and harmonised measurement of entrepreneurial activity and the factors that enhance or impede it.A methodological manual has been published with the aim to have a common methodological framework for business demography statistics. It also includes indicators that are essential for comparability across OECD countries and the investigation of entrepreneurship.

  9. Part 1The BD as product of the BR Business Demography statistics require the existence of a statistical or administrative Business Register. The state of art of BR is quite homogeneous among EU countries but generally many differences exist: • Registration conditions Date of entry not necessarily = beginning to be active registration not always mandatory • CoverageNot all businesses involved in some economic activity • ThresholdGenerally on turnover or employment

  10. Part 1The BD as product of the BR Other ways to measure BD: • Surveys(generally of lower quality): only estimates are possible,(survey errors and sample size limitations) • Census:problem of high cost, (unrealistic)Advantages in using BR: • it’s quicker and cheaper obtaining data than conducting a survey, moreover it minimizes the burden on businesses. • at EU level there is a considerable degree of harmonisation of statistical business registers. The existence of a regulation that set standards for coverage of activities, units and variables, assures a certain level of comparability.

  11. Part 1The BD as product of the BR Advantages in using BR: • Homogenous statistical unit: the enterprise • Possibility to have the full population in order to build up indicators/rates In Italy the BD is an information derived from the Italian Business Register (ASIA)

  12. Part 1Statistical unit At the European level, the enterprise is defined as follows in the statistical units Regulation (Council Regulation(EEC) N. 696/93 of 15 March): • is the smallest combination of legal units • is an organisational unit producing goods or services • benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources • carries out one or more activities in one or more location An enterprise combines factors of production, and this combination has to be complete in order to enable it to produce. The enterprise corresponds either to a legal unit or to a combination of legal units. Business activity cannot exist without the legal basis of legal units.

  13. Part 2Enterprise Birth The production of statistics on births based on a clear and acceptable: • definition • Interpretation Definition (Commission Regulation No 2700/98 ): A birth amounts to the creation of a combination of production factors with the restriction that no other enterprises are involved in the event. Births do not include entries into the population due to: mergers, break-ups, split-off or restructuring of a set of enterprises. It does not include entries into a sub-population resulting only from a change of activity. An enterprise creation can be considered an enterprise birth if new production factors, new jobs in particular, are created.

  14. Part 2Enterprise Birth Esclusions: • Enterprises that are created by merging production factors or by splitting them into two (or more) enterprises (breakups, mergers, split-offs, restructuring); • Newly created enterprises that simply take over the activity of a previously created enterprise (take-over); • Any creations of additional legal units/enterprises solely for the purpose of providing a single production factor. • An enterprise that is registered when an existing enterprise changes legal form. • Reactivated enterprises if they restart activity within two calendar years.

  15. Part 2Enterprise Birth The BD aim is to distinguish between “real” demographic flows and “false” flows. A real birth: • started from scratch (new production factors, no other enterprise is involved) • actually started activity Some considerations follow: • No general threshold is applied • Need to understand when changes affect the identity of the enterprise

  16. Part 2Enterprise Birth A formalisation of the demographic flow is given by the following equation: where: • =population of active enterprises in a reference period t • = population of active enterprises in a reference period (t-1) • = entries in a reference period t • = exits from the reference period t-1 • = active enterprises both in the period t-1 and t

  17. Part 2Enterprise Birth Step 1: Identification of new enterprises in the reference period t Need of: • for elimination of reactivations

  18. Part 2Enterprise Birth Step 2: Elimination of creations due toother events than births from the population of new enterprises • events of structural changes (break-ups, split-offs, mergers and one-to-one take-overs) = Entries without reactivated enterprises and without creations due to events of structural changes.

  19. Part 2Enterprise Birth Step 3: Other creations:Links for continuity (change of legal status, inheritance successions, partnerships) The notion of continuity Condition under which different units are deemed to be the same over a given time period. Definition (Willeboords-Struijs, Eurostat 1993) An enterprise is considered to be continued if it modifies without any significant change in its identity that is in terms of its production factors.

  20. Part 2Enterprise Birth The notion of continuity • Identity: An enterprise is recognised by a specific set of resources, functions and products such as changes in their combinations allow to define continuity concepts Eurostat suggests, as a practical criterion, to use precise variables available in the register that are correlated to the most important production factors for identifying the enterprise: • The controlling legal unit of the enterprise Legal (N) • The economic activities carried out (S) • Thelocations where the activities are carried out (L)

  21. Part 2Enterprise Birth The notion of continuity The basic hypothesis is that a change in such characteristics would stand for a change in the production factors. As empirical rule Eurostat suggested that: an enterprise is considered to bediscontinuedif two over three modifications in the previous factors occur. For the continuity rules, several software and standard matching system can be applied according to the national sources and experience.

  22. Part 2Enterprise Birth The Continuity rules in practice (the Italian approach) In Italy, the identification of the “real” components is based on the application of Record Linkage (RL) techniques. The matching process matches on name, economic activity and location of enterprise.

  23. Part 2The Continuity rules in practice Identification of population of Real Births Example:

  24. Part 2Enterprise Death Definition (Commission Regulation No 2700/98): Adeath amountsto the dissolution of a combination of production factors with the restriction that no other enterprises are involved in the event. Deaths do not include exits from the population due to mergers, take-overs, break-ups and restructuring of a set of enterprises. It does not include exits from a sub-population resulting only from a change of activity.

  25. Part 2Enterprise Death Like the real enterprise births, the identification of real enterprise deaths is based on the same procedure: where: • =population of active enterprises in a reference period t • = population of active enterprises in a reference period (t-1) • = entries in a reference period t • = exits from the reference period t-1 • = active enterprises both in the period t-1 and t

  26. Part 2Enterprise Death Like enterprise births, exits should be checked for reactivations. An enterprise death occurs only if the unit has been inactive for at least two years. In order to find the events that were not real enterprise deaths, but rather cessations due to events like break-ups, mergers or take-overs, a matching criteria (as for enterprise births) should be carried out. Finally the continuity rule is applied to identify the cases where another unit is involved in the cessation of the enterprise. As for enterprise births, the matching should consider name, location and economic activity. • According to this procedure for the identification of real enterprise deaths in year t, populations in (t+1) and (t+2) are needed. • In practice, at the time t, it is possible identify only provisional real deaths(t-1) (due to the unknown reactivations at year t+1).

  27. Part 2Enterprise Death • The estimation method (Italian approach) • Analysis of enterprise deaths rates time series in the previous 5 years • Use of a more updated source – The Social Security (SS) (information at t+1) Three variables of stratification: • Economic activity (466) • Legal status (3) • Size class (4) In total 5,600 strata

  28. Part 2Enterprise Death • The estimation method (Italian approach) Methodology: for where:

  29. Part 2Surviving enterprise Definition (Commission Regulation No 2700/98): - An enterprise born in year (t-1)(Real birth) or having survived to year (t-1) from a previous year is considered survived in year tif it is active in terms of turnover and/or employment in any part of year t (= survival without changes). - If the enterprise is not active in year t it has survived if its activity is taken over by a new enterprise set up specifically to take over the factors of production of that enterprise in year t (= survival by take-over)

  30. Part 2Surviving enterprise The identification process • Real enterprise births in year (t-1) 2) Active enterprises in year t 3) Enterprises which have commenced activity in year twith the purpose of taking over the factors of production of an enterprise that started activity before t

  31. Part 2Surviving enterprise The identification process Matching these populations Possible outcomes by matching the populations using enterprise identity number as the key

  32. Part 3BD based on employment The New concept on the Employer BD To improve international comparability a definition for employer enterprise birth is added to complement the enterprise birth. While the “standard” BD on enterprise birth covers all units (without any threshold concerning very small units) the Employer Enterprise Birth(EEB) is an enterprise birth with at least one employee. • This introduces a further problem: the measurement of employment both as self-employment and salaried employment. • The definition take into consideration the need to measure employees.

  33. Part 3BD based on employment Employer Enterprise Birth (EEB) Two conditions which qualify an enterprise as an employer birth: • It was an enterprise birth in year t (real birth), and had at least one employee in the year of birth or 2) It existed before year t, was not an employer for the two previous years and had at least one employee in year t (entry by growth). Optional step: Removing enterprises that grew by take-over.

  34. Part 3BD based on employment Employer Enterprise Death (EED) Two conditions which qualify an enterprise as an employer death: • It was an enterprise death in year t (real death), and had at least one employee in the year of death or 2) It had at least one employee in year t and continued to exist afterwards without employees (exit by decline). Optional step: Removing enterprises that shrunk by split-off

  35. Part 3BD based on employment Employer Survival Enterprise Definition: • An Employer enterprise birth in year (t-1) is considered survived in year tif it is active in any part of year tand if it has at least one employee (=survival without changes). • If the enterprise is not active in year tit has survived if its activity is taken over by a new enterprise (with at least one employee) set up specifically to take over the factors of production of that enterprise in year t(=survival by take-over)

  36. Part 3BD based on employment High Growth Enterprise Definition: All enterprises with average annualised growth in employees (or in turnover) greater than 20% per annum, over three year period and with 10 or more employees at the beginning of the observation period should be considered as high-growth enterprises. Medium Growth Enterprise Definition: All enterprises with average annualised growth in employees (or in turnover) between 10% and 20% per annum, over three year period and with 10 or more employees at the beginning of the observation period should be considered as medium-growth enterprises.

  37. Part 3BD based on employment The identification process Definition of Potential HG: All enterprises that are actives in three consecutive years, excluding the enterprises born in the beginning of the observation period. Step1: a merge by identification code of the population to Step2: we exclude the from the Potential HG population

  38. Part 3BD based on employment The identification process Step3: Size threshold of 10 or more employees at the beginning of the period (t-3) This threshold of 10 employees is a convention and it is applied to avoid the introduction of biases that overstress the importance of small enterprises.

  39. Part 3BD based on employment The identification process Step4: Growth threshold : 20% per annum for the HG Growth threshold 10%-20% per annum for the MG For example the HG are obtained applying to the population of reference HG (step 3) the following rules to employees or to turnover: or

  40. Part 3BD based on employment The identification process Step5: HG and MG can grow because events of takeover. -Takeover from units that cease. -Takeover from units that transfer activity. By excluding such events we obtain the “pure” HG and “pure” MHG

  41. Part 3BD based on employment Gazelle Enterprise Definition: All enterprises up to 5 years old with average annualised growth grater than 20 % per annum, over a three year period It is that subset of HG that are real births in (t-5) and (t-4).

  42. Part 3BD based on employment Entrepreneurship Indicators Programme (EIP) • The Entrepreneurship Indicators Programme (EIP), launched by OECD in September 2006, has as main goal to build internationally comparable statistics on entrepreneurship and its determinants. In 2007, Eurostat joined forces with the OECD to create a joint OECD-Eurostat EIP, and work began with the development of standard definitions and concepts as a basis for the collection of empirical data. • The OECD-Eurostat approach has tried to combine the more conceptual definitions of entrepreneurship with (available) empirical indicators.

  43. Part 3BD based on employment Entrepreneurship Indicators Programme (EIP) 3) The following definitions were established: • ENTREPRENEURS are those persons (business owners) who seek to generate value through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets. • ENTREPRENEURIAL ACTIVITY is enterprising human action in pursuit of the generation of value through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets. • ENTREPRENEURSHIP is the phenomenon associated with entrepreneurial activity.

  44. Part 3BD based on employment Entrepreneurship Indicators Programme (EIP) Topic categories for entrepreneurship indicators

  45. Part 4Business Demography Indicators Indicators currently refer to: (A) Births and deaths (B) Job creation and destruction due to demographic components (C) SurvivingEnterprise (D) Growth, based on the survival of births  (E) Entrepreneurship Indicators Programme (EIP)

  46. Part 4Business Demography Indicators • Indicators on enterprise births/deaths a1) Real Births/Deaths as a percentage of the population of active enterprises (birth/death rates). a2) Real Births/Deaths by size class. a3) Real Births/Deathsby economic activity. To measure the impact of enterprise births/deaths on the population of active enterprises.

  47. Part 4Business Demography Indicators (B) Job creation and destruction b1) Persons employed in newly born/dead enterprises in year t as a proportion of persons employed in the stock of active enterprises in year t (both in head counts) b2) Employees in newly born/dead enterprises in year t as a proportion of persons employed in newly born/dead enterprises in year t (both in head counts)

  48. Part 4Business Demography Indicators (B) Job creation and job destruction The difference between stock of employment calculated on yearly base (at micro level) provides an estimate of job creation (if positive) and destruction (if negative). • GJT (gross job turnover):is the sum of all flows given by creations and destruction during a year, it is a measure of job reallocation. • NJT (net job turnover): is the variation between creation and destruction.

  49. Part 4Business Demography Indicators (C) Indicators for Surviving Enterprises c1) Number of surviving enterprises in year tdivided by number of enterprise births in year (t-i) (i=1,…,n) This indicator measure the survival rate in year tof real births in year (t-i) (D) Indicators on growth based on the survival of births d1) The number of persons employed in surviving enterprises in their i-thyear of operation divided by the numbers of persons employed in RB in the initial year.

  50. Part 4Business Demography Indicators (E) Entrepreneurship Indicators Programme (EIP)

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