This paper’s purpose is to develop a suitable method to identify the contribution that start-up businesses (business births) make to total job creation in the New Zealand economy. And similarly, the contribution of closing businesses (business deaths) to total job destruction in the economy. Developing this method will enable further research into total job creation and destruction across the economic business cycle.
To meet this objective, the paper answers the following questions.
- What is the most effective method for identifying business births and deaths in New Zealand job creation and destruction data?
- What timeframe is required to distinguish business births and deaths from business reactivations? Business reactivations are businesses that are dormant for a period before they recommence activity and should not be included as births and deaths.
Three suitability criteria for identifying the most effective methods are discussed in this paper.
- Accurate identification of births and deaths in the job creation and destruction data. It is desirable to have a method that accurately identifies the majority of births and deaths in the job creation and destruction data.
- Data timeliness. A method that can identify births and deaths as close as possible to the publication of the job creation and destruction data is preferred.
- The concepts used must allow the business births and deaths to be integrated with the job creation and destruction data. This is so job creation from births and job destruction from deaths can be effectively measured.
Purpose
The objective of this paper is to develop a suitable method to identify the contribution of start-up businesses (business births) to total job creation in the New Zealand economy. And similarly, the contribution of closing businesses (business deaths) to total job destruction in the economy.
Methodology
A range of business birth and death definitions are trialled on job creation and destruction data from Statistics New Zealand’s Linked Employee-Employer (LEED) dataset. The birth and death definitions are measured on a quarterly basis, to correspond with published LEED statistics. The definitions are compared and contrasted against suitability criteria – to identify the most effective method. It is desirable to have a method that accurately identifies the majority of births and deaths in the job creation and destruction data. A method which allows for more timely identification of births and deaths in the LEED data is also preferred.
Key Results
A business birth and death can go through different phases, so an important definitional issue relates to timing (when does the birth or death actually occur). The analysis found the timing for a business birth should be when the business first engages paid employees. Conversely, the timing for a business death should be when the business removes all paid employees. This method accurately identified the majority of births and deaths in the job creation and destruction data. An alternative timing method, based around the time of financial tax registration and deregistration (such as for goods and services tax), excluded a large number of births and deaths in the LEED data.
The analysis shows that four quarters of employee data can effectively distinguish business births and deaths from business reactivations. Business reactivations are businesses that are dormant for a period before recommencing activity – they should not be included as births and deaths. This means that business death data can be confirmed three quarters after initial publication of the job creation and destruction data. There is no delay with identifying business births, as these are located retrospectively in the dataset