Productivity Heroes - moving on from the vital 6%

Presentation to ERC State of Small Business Britain Conference 2024 by Karen Bonner

1. Productivity Heroes – moving on from the vital 6% Dr Karen Bonner & Prof Mark Hart 3 rd October 2024

2. Context Note: This presentation contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen's Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. The analysis upon which this presentation is based uses research datasets which may not exactly reproduce National Statistics aggregates.

3. Business Dynamism in the UK – a story of long-term decline Source: ONS BSD Business Dynamism in long-term decline since 1998 – Job Allocation Rate (JAR) falling from 35% in 1998 to 23% in 2023 – clear evidence of the enduring productivity problem in the UK

4. Scaling and HGFs….. Hart, M; Prashar, N and Ri, A (2020) “From the Cabinet of Curiosities: The misdirection of research and policy debates on small firm growth”, International small Business Journal, 2020 (with Neha Prashar and Anastasia Ri) https://journalsˌsagepubˌcom/doi/10ˌ1177/0266242620951718 Scaling’ is an important dynamic to nurture in the economy. Current discussions about ‘scale-ups’ profoundly unhelpful from a policy perspective. Having started the ball rolling a decade ago with our work for NESTA (i.e., the Vital 6% - HGFs 2005-08 – 40% had exited the market by 2016!!) we now state: “There’s no such thing as a High-Growth Firm (or ‘scale-ups’) only firms that have high-growth episodes” To use, e.g., the OECD definition of a HGF renders invisible the actual growth that takes place in a firm over its life cycle and indeed the wider firm population! Importance of interplay between firm size and age cannot be understated in our understanding of the scaling process

5. Productivity or Jobs? Source: Anyadike-Danes, M and Hart, M (2016) “Seeing the trees for the wood: going with the grain of the extraordinary heterogeneity of firm-level productivity”, ERC WP, November 2016 Source: ONS BSD From a productivity perspective HGFs, as defined by the OECD, are not an important group of firms. Only 20% of 10+ employee firms that increased their productivity were HGFs (Turnover definition) Only 5% of 10+ employee firms that increased their productivity were HGFs (Jobs definition) When considering both turnover and jobs growth only one ‘space’ where growth in turnover; jobs and productivity are all +ve – the ‘green zone’

6. Productivity Heroes

7. Productivity defined as turnover per employee (turnover/employment) Number of ways that productivity growth can be experienced: Turnover growth (+) > employment growth (+) Turnover growth (+) > no employment change (=0) Turnover growth (+) > employment decline (-) No turnover change (=0) > employment decline (-) Turnover decline (-) < employment decline (-) What is a Productivity Hero? Productivity Heroes

8. Productivity Hero trends Year No. of SMEs (3 years+) No. and % achieving productivty growth No. and % of Productivity Heroes 2000-01 676k 347k (51.3%) 15,622 (4.5%) 2007-08 825k 449k (54.4%) 39,245 (8.8%) 2010-11 883k 359k (40.7%) 23,740 (6.6%) 2018-19 1.13m 557k (49.2%) 37,125 (6.7%) 2021-22 1.22m 453k (37.0%) 36,298 (8.0%) Source: ONS BSD

9. Productivity Heroes in comparison 2021-22 Category Description N Turnover growth % Employment growth % Productivity growth % Cat 1 PHs turnover growth (>0) > emp growth (>0) 36,298 196 29 156 Cat 2 turnover growth (>0) > emp growth (=0) 323,753 44 52 Cat 3 turnover growth (>0) > emp growth (<0) 33,856 46 -21 150 Cat 4 turnover growth (=0) > emp growth (<0) 8,989 -28 111 Cat 5 turnover growth (<0) < emp growth (<0) 50,335 -20 -40 47 In 2021-22 the 36,298 Productivity Heroes added 137k jobs and £178bn turnover to the UK economy Source: ONS BSD

10. Productivity Heroes Contribution to UK Economy 2021 2022 Growth % Growth Employment 470,555 607,106 136,551 29 Turnover £90,768,330,000 £268,545,400,000 £177,777,070,000 195.9 Turn/Emp £192,896 £442,337 £249,441 129.3 Average Emp 13 16.7 3.8 29 Average Rev £2,500,643 £7,398,353 £4,897,710 195.9 N 36,298       Source: ONS BSD

11. What about their productivity level? Source: ONS BSD Productivity level of Productivity Heroes versus SME pop 2021 Productivity level of Productivity Heroes versus other productivity growth categories 2021

12. Productivity Hero Characteristics Source: ONS BSD

13. Persistence of being a Productivity Hero? PH2000-01 PH2007-08 PH2010-11 PH2018-19 PH2021-22 PH2000-01 15,622 926 427 354 145 PH2007-08 926 39,245 2,038 1,257 549 PH2010-11 427 2,038 23,740 874 565 PH2018-19 354 1,257 874 37,125 2,948 PH2021-22 145 549 565 2,948 36,298 No. of Spells/Episodes? PHs 2021-22: 36,298 firms: 89% only one occurrence - 2021-22 10% had two spells: 75% in 2018-19 11% in 2010-11 11% in 2007-08 3% in 2000-01 0.7% had three spells 0.05% had four spells Source: ONS BSD

14. Further analysis by preceding/consecutive years – what were they doing if not a Productivity Hero, another type of productivity growth or not? What’s the story in Northern Ireland? – deeper analysis of the NI cohort Using a commercial datasets ( DataGardner and Red Flag Alert/Growth Flag) to explore and identify Productivity Heroes – need for more variables and qualitative data: - e.g., Project for Economic Intelligence Wales (October 2024 to February 2025): Investigation of their characteristics and, more importantly, the drivers of this productivity growth is of critical importance to addressing the long-standing productivity problem in the UK and Wales. What are the implications for economic and business support policy? So what next?

15. Contact Details: Dr Karen Bonner Principal Economist Email: [email protected] Telephone: [phone] Thank you