Yes, high growth firms create the most jobs. But it’s the everyday businesses that provide work for those who need it most
Every politician wants to ally themselves with the small business community.
Take David Cameron, who last month described this crowd as “the lifeblood of our economy”. Or on the other side of the political spectrum, Ed Miliband, who promised to “go into the next election as the party of small business and enterprise.” Little wonder, given that the growing number of self-employed will soon have more electoral clout than the shrinking public sector workforce.
But are their tributes justified? Not so, according to the team at Nesta. In a blog last week, they persuasively argued that the praise given to small businesses for their role in job creation is largely misguided. According to their data analysis, it’s the tiny number of high growth firms – the famous 7 per cent – that generate the majority of new jobs. Their calculations show that such firms, defined as averaging over 20 per cent employment growth over 3 years – were responsible for creating over half of all new jobs in the period between 2007 and 2010.
Moreover, these firms are distributed fairly evenly across the UK (something I was surprised to hear). As expected, London and the South East have the highest number, but even the regions at the lower end of the scale like Wales and the West Midlands have a high proportion of high growth firms (close to 5 per cent each). They also have a decent presence in every sector – from construction, to retail, to business services.
So far, so rosy. But gauging the impact of different firm types on employment is not as simple as totting up the quantity of jobs created. We also have to think about the quality of those jobs, as well as who is taking them. And therein lies the rub. While high-growth firms may create the most jobs, it’s the everyday small businesses that provide work for those who need it most. Recent research by the Federation of Small Businesses, for example, found that the unemployed who enter the private sector are now more likely to find work in your run-of-the-mill small business than anywhere else.
The same is true of others on the economic and social margins. Data analysis by the Institute of Economic Affairs highlighted that women, individuals from certain ethnic groups, those with young dependents, those with low or no qualifications, and those with language difficulties make up a far greater proportion of the workforce in small firms than they do in large ones. For instance, 10.7 percent of employees in microbusinesses have no qualifications, compared with 3.8 percent in the largest firms.
An obvious rebuttal here is that typical small businesses have a high level of job churn. That is, they destroy as many jobs as they create. Moreover, such businesses are unlikely to be able to offer training opportunities or high levels of pay. Yet despite these drawbacks, the employees of small establishments report greater satisfaction and lower levels of work-related illness.
Of course, all of this gets a little confusing when you consider that most high-growth businesses are technically ‘small’. But for all intents and purposes they are geared towards becoming larger entities, and are therefore likely to share the same characteristics. Indeed, it’s hard to picture them sacrificing their productive edge to accommodate a workforce with a lower skill base or English language difficulties.
So while yes, we should acknowledge and seek to support the fastest growing firms, let’s not forget the everyday businesses that provide opportunities to those who most need them.
The RSA and Etsy are exploring similar themes in a new project, The Power of Small. Click here to find out more.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
In spring 2011 I set up You Make It, a not for profit company with the express mission to support young people to gain the confidence, skills, professional networks and experiences needed in life to really unlock their earning potential. I realised I was doing a lot of complaining about the government and their lack of love for those not born into economic comfort and obvious opportunities, and that I had a lot of knowledge and networks I could open up to young people that could be crucial in helping them in what is a very tough climate, a super competitive city (London) and one in which the gap between rich and poor seems to just grow and grow…
You Make It’s flagship programme, Ladies Who L-EARN (which is what we received RSA Catalyst funding for), is the company’s first effort at creating a model of engagement that genuinely shifts the mindset and life chances of the young people who take part. It consists of a 6 month long programme which includes workshops not only focusing on issues around securing paid work and setting up businesses, but also more explorative workshops led by diverse, inspiring and out-of-the-box-thinkers which allow participants the space and support to think through what’s really important to them and what they could and should be doing to earn a living that reflects their values and well-being. As well as the workshops, the participants get 1-1 mentoring through which they identify goals (some of which naturally shift over the course of the 6 months) that they then put into action to make a reality.
The programme attracts a mix of women, some who design and make their own products, some who toy with the idea of one day becoming business owners, and some who quite straightforwardly want to get paid. All of these women start the programme with a few things in common: firstly, not quite enough self-belief to dream big and to turn these dreams into a reality; secondly, they know very few people in their personal lives’, or have had very few if any previous practical experiences, which together have inspired and guided them to achieve professional success.
Along with the workshops and mentoring, inspiration and focus gets sparked with expenses paid work placements in some of London’s leading creative and cultural organisations, through ‘Trading Places’ – which enables those who make their own craft products to test selling them at Old Spitalfields Market, and through a business pitch competition in which those clear budding business women on Ladies Who L-EARN have a chance to pitch for small cash investment and business coaching from YMI. Then there’s the finale – a party at which graduates of the programme take to the stage and speak to a big and networked audience with confidence and authenticity about themselves and where they see themselves going.
it’s amazing how much a person who others have written off, suddenly wants more from life and of themselves because they’re believed in.
Where do these women go? Well, over 90% of them to date have gone into paid work, taken real steps to set up their own business ventures, or have won places in Higher Education. The success of the model is unusual not only because of the outcomes for the women and what they use their experiences of Ladies Who L-EARN to then achieve, but also because of the retention – we start with 20 women and by the end of it, they’ve all stuck it out. Why? It sounds corny, but basically the women on it can tell this is all the real deal with exciting people to meet and places to be, and they know that they’re cared for – it’s amazing how much a person who others have written off, suddenly wants more from life and of themselves because they’re believed in. Ladies Who L-EARN isn’t just about “this is how you write a CV, this is what a business plan is”, it’s about “you’re important and so claim your right to a better life.”
The 3-month long pilot in 2011 worked with young women from Tower Hamlets, and the first full programme after that recruited women from Hackney as well – this ran from 2012/13. You Make It are now happily in the position of being able to run it all again in the East End, and are developing plans for replication in West London come 2014/15 and one other UK city (mulling over Bristol). Thank you RSA for being one of our very first investors back in 2011 and then again for the 2012/13 programme. But of course, it’s not just about the cash – the RSA have hosted work placements for the women on Ladies Who L-EARN, and I’ve also benefitted from other Fellows who run initiatives that have grown into sustainable business models – the next challenge for You Make It!
The network of Ladies Who L-EARN graduates is set to grow further, not just in numbers but geographically as well, and so it should! There are lots of opportunities for you to get involved including as mentors and work placements hosts, and let’s not forget as financial investors.
For further information email me: email@example.com
To get help from RSA Catalyst for your social venture visit www.thersa.org/catalyst
Here in the Fellowship department we are very keen to forge partnerships with organisations that share similar values to our own, the overall idea being that through mutual collaboration we can make a much bigger impact. Recently, our thinking has turned to how we can open up the expertise within our network of Fellows to a younger audience.
Since the summer we have been working with an organisation called Student Hubs to develop a partnership which will bring together the collective expertise, enthusiasm and ideas of RSA Fellows and Student Hubs participants. Working across the UK, Student Hubs seeks to transform student involvement in social action. They act as a catalyst, empowering students to become active members of their community by promoting social action, social entrepreneurship and citizenship.
As with all of our Fellowship partnerships, by collaborating with like-minded organisations we hope to reach out to new audiences – making a bigger impact and helping our partners to do the same. With the support of Social Enterprise Berkshire’s Tony Davis FRSA, we held our our first joint event in Oxford two weeks ago, where students from the Oxford Hub met with RSA Fellows for an evening workshop to brainstorm ways to use Oxford’s empty shops to address a social need.
Be it youth unemployment, sustainable food production or community isolation, people came armed with ideas and possible solutions…
Set in the amazing Turl Street Kitchen (Oxford Hub and Student Hubs HQ), the event had a dual purpose: to introduce social enterprise by thinking about how we could use empty spaces for social good, and to encourage a mix of ideas and collaboration between different generations.
And this is what happened (click to enlarge)…
Great conversations made for some great ideas! But where can we go from here? Well, Student Hubs offers access to a range of funding bodies to support new ideas, and of course RSA Fellowship provides access to small grants through the Catalyst fund and the expertise of Fellows through the SkillsBank. The RSA South Central region is also launching a pop-up shop advice line for Fellows and RSA friends who want to know how to go about taking their ideas forward – get in touch with Alice Dyke, Regional Programme Manager at the RSA, for more information.
We’re hoping to run similar events and initiatives with Student Hubs in 2013 – so watch this space! Student Hubs are based in universities across England such as Southampton, Bristol and Cambridge – if you live in one of these areas and want to get involved get in touch with Amy Anderson, Oxford Hub Manager.
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We’re always happy to hear about potential opportunities for collaboration and partnership at the RSA – if you’d like to find out more, please contact our Partnership Development Co-ordinator, Jo Painter.
For more pictures from this and other RSA events, join the RSA Flickr group.
Today’s news that the Vauxhall car factory in Ellesmere is to be saved from closure will be a huge relief to the 2,000 or so workers whose jobs were at risk. This coincides with some welcome improvements in yesterday’s employment growth figures. According to the ONS, unemployment is down by 45,000 and so too are the numbers claiming job seekers allowance. Experience tells us that it is unwise to think that the darkest days of the economic slump are behind us, but surely isn’t this cause for some optimism?
For the economy maybe, but not necessarily for workers. A closer look at the figures reveals three or four key shifts we should probably be concerned with. The first is that the number of people out of work for more than a year rose by something like 3 per cent to nearly 900,000. A recent New York Times article lists a number of research reports which highlight the kind of ‘scarring’ effects that such long-term unemployment can cause. The title of one Pew Research Center article says it all: “Lost income, Lost friends – and Loss of Self Respect.” In a sort of self-perpetuating downward spiral, these problems in turn decrease the likelihood of finding a job.
The second trend to be wary of is the rising number of part-time workers. While some people choose to work fewer hours for reasons such as childcare issues or the desire for more leisure time, there are many others who would much prefer to work full-time. The ONS figures from yesterday show that the number of people working part-time because they could not find a full-time job reached a record-breaking 1.5 million, up by 73,000 in a quarter. The key problem with this shift to part-time employment is that it can have repercussions for people’s benefit entitlements. The recent changes to Working Tax Credits mean that people now have to work 24 hours in a week rather than 16 to qualify for benefits. The result is that if you are a part-time worker who cannot secure the minimum 24 hours you could lose up to £3,900 a year.
This brings me to the third, already well-established, shift of declining levels of growth in wages. ONS figures reveal that total pay (including bonuses) climbed by only 0.6 per cent over the past year. Given that annual inflation is currently at around 3.5 per cent, a crude calculation would make this a real wage decrease of a notable 2.9 per cent.
The fourth shift, albeit I believe not one documented in the ONS data sets, is the growth of ‘zero-hour contracts’. Typically seen in low-paid and low-skilled work, these are full-time contracts but ones which do not commit the employer to provide any working hours to the employee. The idea is that employers can fluctuate the hours of workers subject to their need. Although not ideal for the employee, in theory it should help to create more flexibility for employers and in turn increase the likelihood of them taking on more staff (since they’re not afraid of being stuck with workers should there be a serious downturn). The problem is that these contracts are reportedly being abused by many companies, leaving workers with no security and the added trouble of continually trying to re-establish their benefits when their working hours fall away. The fact that these individuals still theoretically have a contract makes claiming all the more difficult.
The following interview extract from Stephen Armstrong’s The Road to Wigan Pier Revisited gives us a sense of how those at the bottom of the pyramid are struggling to cope with the upheaval this causes:
Robin Tenant works at Argos, in Warrington. “They gave me a four-hour contract – it only guarantees four hours of work a week,” he explains. “Now for some people it suits them absolutely fine, do you know? Four hours work a week if you were a pensioner trying to top up your pension or you’re just starting going back to work is fine. But we are a family and both me and my partner have a four-hour contract with one store and so we have eight hours work between us for a week. We’re employed, so we don’t have… so unemployment benefit becomes a complete nightmare because we technically have contracts and we have thirty-six hours work one week and then four and it means that as soon as something happens – like the week before Christmas last year the snow happened – we’re stuffed.
All of the above four shifts illustrate how far we have yet to go in creating not just more, but better jobs. Not every job or working contract is a good one, so why is it that we breathe a collective sigh of relief when employment figures go up? Moreover, why do we rail at the unemployed for their lack of effort in finding employment and yet do very little for those who eventually do find scraps of work?
What is perhaps needed is a more critical analysis and honest debate about what a good job or contract really looks like. This means looking seriously at models like ‘Flexicurity’ championed by Will Hutton, and learning from the likes of Germany where trade unions, employers and workers club together to reach an agreement on working patterns which suits all parties. Conversely, what we don’t want is a fixation on job numbers alone or indeed a political class that seeks to stifle the debate by using terms such as “job snobs” to dismiss those who raise the subject.
Yesterday’s Guardian contained an interesting article by John Kampfner on the economic miracle now taking place in Germany. Kampfner describes how Germany, strengthened by its long-term emphasis on planning and investment, has managed to ride out the worst of the economic storm currently engulfing much of Europe, most notably Greece, Ireland and Spain. He draws particular distinctions between the experience of Germany and that of the UK, noting how between 2000 and 2010 their exports to China were twice as much as ours. Though Kampfner doesn’t say it, similar comparisons can be found in our employment figures. While Germany’s level of unemployment is currently around 6%, the UK is still shouldering something in the region of 8%.
But why the difference? Although the origin of this economic success is said to be found in a number of sources, there are two in particular that stand out. First, the German economic model is based on highly skilled and efficient labour, nurtured through good quality education in high-tech subjects, investment in R&D and a sound vocational training system, all of which the UK seldom seems to enjoy.
Second, German industry and government have an exceptionally strong relationship with its trade unions, which allows for more effective dialogue and early consensus to be reached as soon as gloomy clouds appear on the economic horizon. The banking crisis of 2008 is just one example of this, whereby both sides agreed to cut working hours and pay across the board to ensure workers would be buffered by the worst of the crisis. In contrast, the UK’s poor investment in research and technology, a reliance on debt-financed spending and a fractious relationship with trade unions have apparently formed the perfect recipe for the woes we currently find ourselves in.
Despite many of these being obvious and intuitive truths – we know, for instance, that we need to catch up with Germany when it comes to vocational skills – there is something about the explanation of Germany’s success story which appears all to simple. Is their economic miracle – or as it is sometimes called, the ‘Wirtschaftswunder’ – really all it is cracked up to be?
Were we to go deeper we might find that the German economic model has caused not just significant problems on the domestic front but also in the wider European arena. Writing for The Globe and Mail earlier this year, Doug Saunders talks about how Germany’s economic strategy has for years been based on export-oriented growth by keeping labour costs low and productivity rates high. Europe’s smaller and poorer countries, many of whom became integrated into the EU this century, became valuable new consumers for the goods rolling off Germany’s production line. The money that this brought in enabled banks to ease the flow of credit for the nation’s consumers, while keeping interest rates low. In this way, Germany’s prosperity was built upon the growing debt (and ultimately the bankruptcy) of its neighbours, many of whom are now berated in the country’s media for being lazy, unproductive and reliant on the powerhouses of northern Europe.
Domestically, the picture is much the same. In order to keep the German manufacturing industry moving and the demands of its products from their Southern neighbours met, the country has had to rely strongly on immigration to supply a young and healthy workforce. With the smallest average family sizes in Western Europe this has been critical to their model. Saunders notes that economists predict Germany to need as many as 800,000 additional workers from Eastern Europe and Turkey before the end of 2012. Even for a country the size of 80 million, this will be a large and noticeable influx of people.
The problem is that the German economic model is based just as much on low wages as it is on high productivity. With figures showing that German wage rises over the last ten years have been the lowest in Europe, the prospect of a large amount of new workers further depressing the level of take home pay can only serve to increase the numbers of people holding Angela Merkel’s view that “multiculturalism” isn’t working.
So while there is a general sentiment among many social and economic commentators in the UK that we should marvel at the German economic model, a closer look at the current economic malaise in Europe presents a more complicated picture. Investment in R&D and a good vocational system simply doesn’t explain everything, nor does the harmonious relationship between trade unions and the government. If anything, this has only served to sustain an economic model which is built on low wages and which has sown the seeds of angst that many of its citizens are feeling.
To return to Kampfners article, for the UK this means not taking the economic success stories of other countries at face value. Most of us know that we require some rebalancing of the economy and less of a reliance of private and public debt to fuel growth. Likewise, from evidence such as that presented in the recent Wolf review of vocational learning, we know that we need to improve our educational offer and to better tailor training to the needs of our industry and manufacturing sectors. But we should also be wary of examining our economic model and that of other individual countries without looking at the wider economic (and political) context which they sit within, and the intricate international exchanges of labour, credit and capital which they rely upon.