Firm Dynamics and Job Creation in New Zealand: a Perpetual Motion Machine

Abstract

This paper uses a cohort approach to examine firm dynamics and employment growth in New Zealand. Consistent with overseas evidence, we find a large degree of churn in the economy, with many new, mostly small, firms being created each year. Many of these firms disappear relatively quickly, but those that manage to survive experience reasonable employment growth on average. However, much of this “on average” growth is driven by a very small number of firms with high employment growth. Indeed, we find that while the smallest firms play a relatively large role in accounting for net job creation, this growth involves just a modest proportion of the smallest firms, while the majority of these firms do not grow much at all.