JOB CREATION AND JOB DESTRUCTION IN THE UK MANUFACTURING SECTOR
| Date | 01 February 1995 |
| DOI | http://doi.org/10.1111/j.1468-0084.1995.tb00024.x |
| Author | Jozef Konings |
| Published date | 01 February 1995 |
OXFORD BULLETIN
OF
ECONOMICS
AND STATISTICS,
57.
I
(
1995)
0305-9049
JOB
CREATION AND
JOB
DESTRUCTION
IN
THE
UK
MANUFACTURING SECTOR
Jozef
Koningst
INTRODUCTION
Recent plant level panel data studies have shown that there exists a large
amount of gross job creation and gross job destruction at all phases of the
business cycle and even within narrowly defined sectors.
The
gross
job
creation rate is defined as the sum of all employment gains in all expanding
firms relative to the size
of
the economy. Similarly, the
gross
job destruction
rate
is
defined as the sum
of
all employment losses in all contracting firms
relative
to
the size
of
the economy, expressed as a positive number. For the
US
manufacturing sector, Davis and Haltiwanger
(1990, 1992)
find that
annually on average plants created
9.2
percent new jobs and destroyed
11.3
Percent existing ones during the
1970's
and early
1980's.
Similar results are
found for other countries like Germany, Italy and other European countries
(Boeri and Cramer,
1992;
Contini and Revelli,
1993).
This paper is
concerned with job creation and destruction in the
UK
manufacturing sector
in the
1970's
and early
1980's.
This is a particularly interesting period to
analyse since there were two major recessions, the first and second oil shocks.
The study of gross job flows is interesting and important for a number of
reasons. Studying
gross
job flows rather than net flows allows us to obtain
additional information on employment dynamics that
is
not available
from
traditional employment statistics.
For
instance,
if
aggregate employment grew
4
percent, this could be the result
of
8
percent
of
gross
job creation and
4
Percent
of
gross
job destruction, or
of
30
percent
gross
job creation and
26
Percent
gross
job destruction. Furthermore, shifts in product demand can
lead to simultaneous contraction and expansion
of
firms within the same
sector, as well as across sectors. This reallocation process is likely
to
imply
substantial job and worker reallocation, thus involving transactions costs, like
hiring, firing and search costs. Moreover if the mobility of workers between
t
This paper is produced
as
part
of
the Centre's programme
on
National Economic
Perform-
ace. The centre for Economic
Performance
is
financed
by
the Economic and Social Research
Council.
I
wish
to
thank Bruno Contini,
Chris
Pissarides. Jonathan Wadsworth, an anonymous
referee and the editor. Stephen Nickell. for useful comments
and
suggestions.
I
have benefited
from
presentations at LSE, CEPR and Trinity College, Dublin.
All
errors are mine.
0
Basil
Blackwell
Ltd.
1995.
Published
by
Blackwell
Publishers,
108
Cowlcy
Road.
Oxford
OX4
1JF.
UK
5
238
Main
Street, Cambridge.
MA
02142.
USA.
6
BULLETIN
firms
or
sectors is sluggish, structural unemployment will result (Lilien,
1982).
Thus,
in
sum,
gross
job flows can give
an
indication
of
the amount
of
structural change an economy is undergoing.
The results that emerge from this study are striking. Using a sample of
large
UK
manufacturing firms we report an annual average job creation rate
of
1.6
percent and an annual average job destruction rate
of
5.6
percent over
the sample period,
1972-1986,
which is substantially lower than those
reported in other studies. This might be due to the fact that in
our
dataset we
only observe surviving firms and that we do not have plant level data, but
rather firm level data. Consequently, we cannot identify the contribution
of
births (deaths) to the job creation (destruction) process and we do not
measure the reshuffling
of
jobs
between plants within one
firm.
We will
address these issues
as
we report and compare the results with other studies.
The methodology we pursue
in
this paper is
very
similar to the one
followed by Davis and Haltiwanger
(1992)
and Boeri and Cramer
(1992).
The section
I
discusses the data and measurement issues. The section
I1
reports some basic facts on job creation and job destruction rates in the
UK
manufacturing sector over the period
1972-1986.
We will report the yearly
gross job flow rates and discuss its cyclical properties.
Gross
job reallocation,
the
sum
of
job creation and destruction, turns out to be countercyclical.
This
is because,
as
we shall see, fluctuations in the job destruction rate are far
more pronounced than fluctuations in the job creation rate. We also report
gross job flows within narrowly defined sectors and analyse the extent of
shifts
of
jobs both within and between sectors. Throughout the paper we will
compare the results with those from Davis and Haltiwanger
(1992)
for
the
US
because their study is
also
restricted
to
the manufacturing sector over the
same sample period.
This
comparison will be restricted
to
job
flow rates
computed from large
US
plants in order to make a consistent comparison
with the
UK
data. In section
111
we seek to make
some
further international
comparisons
of
gross
job flows. We conclude
in
section
IV.
1.
DATA AND MEASUREMENT CRITERIA
The
EXSTA TJDA TASTREAM
company accounts data
The principle dataset we use, consists
of
an unbalanced panel
of
993
large
UK
manufacturing companies over the period
1972-86,
drawn from the
EXSTAT .data tape and DATASTREAM on-line service. Average employ-
ment in the sample is
4,530
in
1978
and the median is
1,111
employees. In
1978,
the total number
of
employees in the sample amounts
to
4,231,552.
This
compares with
7,176,000
employees in the manufacturing population.
Thus our sample covers about
60
percent
of
total manufacturing
in
1978.
While the sample contains the majority
of
manufacturing workers, it contains
only
a
minority
of
firms
in total manufacturing, namely only the large
firms.
The majority
of
these firms are multi-plant firms and the dataset under-
0
Basil
Blackwell
Ltd
1995.
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