Young firms create most jobs

Micro-startups created 66,000 jobs

Young firms and startups are the local engines of job creation, according to a World Bank report, published today.

The report said that micro-startups (firms of between zero to four years of activity and with less than four workers) generated about 66,000 jobs in the years 2005-2010. Young, large firms with 200-1,000 employees created 12,000.

“Entrepreneurship is growing significantly and many entrepreneurs are entering the market, which helps create jobs opportunities” said Wissam Harake, Economist at the World Bank-Lebanon. “Startups prove to be the main and only source of creating jobs in the country, in the light of economic slowdown in recent years,” he said.

The more productive the firms, the more jobs they create, the report said. A one percent increase in firm productivity raises job creation by 3.9 percent, on average. Consistent with these findings, fast growing firms, the so called “gazelle” firms, are more productive and younger than non-gazelle firms, according to the report.

Startup creation is low, pointing to many barriers to starting a business, including competition. The rate of creation of new firms in the manufacturing and services sectors are low, relative to the region. For instance, the entry rate of new services firms is only nine percent, indicating that only nine new firms are opened for every 100 existing firms, compared to 12 new firms in a fast-growth economy such as Turkey’s.

Most firms do not improve their productivity significantly enough over time, due in particular to low competition and poor performance in backbone services, such as electricity, according to the report.

Over 43 percent of respondent firms disagreed with the World Bank statement that policy implementation is “consistent and predictable.” As a consequence, firm managers spend over 12 percent of their time dealing with various government entities. The discretionary policy implementation breeds corruption and special treatment for a few privileged firms, the report said.

The report recommended many solutions, including legal and administrative reforms. Citizens should also have access to information on proposed and ratified laws and regulations, among other recommendation

“The national economy is generating one third of all job opportunities, mostly absorbed by Small to Medium Enterprises (SMEs). More efficiency can be felt in the labor market, where job opportunities are created by larger companies,” said Harake.

The report is part of the World Bank regional report ‘Jobs or Privileges: unleashing the employment potential of the Middle East and North Africa’.