“Firm Dynamics and Job Creation in Turkey" I.Atiyas, O.Bakis and Y.K.Orhan II. Girişim İstatistikleri Analizi Çalıştayı 27 Mart 2015

Motivation We use TurkStat business registers which covers all firms in the business sectors of Turkey to investigate patterns of firm dynamics and job creation. The paper tries to answer the following types of questions: – How does employment growth vary across groups of firms with different size and age? – How does entry and exit vary across groups of firms with different sizes? – What is the survival and job growth performance of new entrants? – What percentage of young or small firms make successful transitions into being mature large firms? – What happens to firm size as firms become older?

Sectoral coverage We use only sectors covered by Structural Business Statistics (SBS). Differently from the SBS approach, we cover all firms, even those which survived less than 6 months. => better idea of entry and exit. A small fraction of the TurkStat business registers (139,000 out of 3,495,000, in 2012, approximately 4 % ) are surveyed by the Annual Industry and Service Statistics (AISS). The panel component (20+) in the AISS is about 70,000 (2 %).

Number of firms and total employment (1000) -Total number of firms actually has not increased much between 2005 and Significant reductions in both the number of firms and employment in 2009 and issues: informality, coverage

Distribution of firms and employment according to size (2005, 2012) -Significant decrease in the share of 1-2 -Can not separate 1 and 2 because of coding problems

Distribution of employment by age (2005, 2006 and 2012) - Firms below age 10 account for 60 to 80 % of total employment - Distribution shifted towards the right between 2005 and 2012

Distribution of employment by size and age 2005 and 2012 (%) Micro: 1-9 Small: Medium: Large: 250+ Young: =10 -Share of young decreases in each size group!

Entry and Exit E(t) = # of firms not observed in (t-1) but observed in t. C(t) = # of firms that are observed in the data set both in (t-1) and (t). X(t) = # of firms observed in (t-1) but not observed in (t). T(t) = Total number of firms in year t. Note that the total number of firms can be written – T(t) = E(t) + C(t), considering t and t-1 – T(t) = C(t+1) + X(t+1), considering t and t+1 Entry and exit rates are defined, for period t, as follows: – Entry rate (ER) = E(t)/T(t-1) – Exit rate (XR) = X(t) /T(t-1)

Entry and exit rates ( ) ER > XR in 2008, 2011 ER < XR in 2006, 2009, 2010 ER ~ XR in 2007, 2012.

Entry and exit rates by sector ( averages) -Generally ER > XR

Percentage of entrants at age 0 and 1 and their share in employment -Before 2008, almost all entrants have age 0 or 1 (about 95 %) -After 2008 the share of firms aged 0 or 1 in entrants is about 80 %. Data problems ? Better detection ?

Distribution of entrants by size -Firms with 1-2 employees account for more than 90 % of all entrants. -Firms with 1-2 employees account for % of all jobs created by entrants.

Total job creation and destruction ( total) - Job creation by entrants should be seen as the UPPER bound !!!

Job creation and destruction by size ( total) Small firms create most of the new jobs -Firms with 1-2 employess account for 48 % of net job creation -Firms with 1-19 employess account for 71 % of net job creation

Survival rates of cohorts of entrants / all firms - Survival rate is about 50 % after 5 years for new entrants. - Survival rate is about 57 % after 5 years for all firms

5 year transition matrices All firms entrants -Exit rate declines by size -More persistence for all firms, compared to new entrants -New entrants’ exit rates are higher in each size group

Survivors’ average size after entry 2006 entrants -average size of 2006 entrants is about in the first year and grew to about in True survivor: never exists

Firms' relative size over the life cycle in Manufacturing USA: 2002, IND: , MEX: 2003, TUR: Size constraints ? Suboptimal investment level by firms ? Lack of creative destruction? Financial constraints ? etc.

Relation between employment growth and size/age Age with average size controls - No systematic relationship between net job growth and firm size once we control for firm age

Relation between employment growth and size/age (full size-age interactions) Average size with age controls Age with average size controls

Conclusion Important share of small and young firms (1-2) in total employment Important role of small and young firms (1-2) in job creation Variation in exit and entry rates across years and sectors Survival rate of new entrants is slightly lower than all firms (50 % vs 57 % for 5-year survival rates) -Exit rates are negatively correlated with size -New entrants’ exit rates are higher in each size group -No systematic relationship between net job growth and firm size once we control for firm age -Negative relationship between net job growth and firm age after controlling for firm size.