The Heterogeneity of Job Creation and Destruction in Transition and Non-Transition Developing Countries: The Effects of Firm Size, Age and Ownership

Abstract

This paper investigates how firm age, size and ownership are related with job creation and destruction, and how these patterns differ across transition and non-transition economies. The analysis finds that age is inversely related with gross job creation and net job creation in the two samples. This finding is consistent with the theory of the learning effect. The relationship between age and job destruction is indifferent in non-transition economies. On the contrary, old firms in transition economies destroy more jobs than young ones. The paper further establishes an inverse relationship between size and gross job creation in the two groups. However, there is divergence between the two samples; small firms in non-transition economies also exhibit a higher gross job destruction rate. Consequently large firms have a higher net job creation rate. In transition economies, small and large firms exhibit similar rates of job destruction. But small firms retain a higher net job creation rate. A more intriguing finding is that state owned firms do not underperform domestic private ones. This means these countries may be using soft budget constraint which allows state owned firms to overstaff. Finally, crowding out of SMEs by foreign owned firms is not evident in transition economies.

Keywords: Developing Countries, Transition Economies, Non-transition Economies, Entrepreneurship, Firm Age, Firm Size, Ownership, Job Creation, Job Destruction, Gibrat’s Law, Learning Model, Soft Budget Constraint

JEL Classification: O12, O31, O32, L11, L25, L26