Creative destruction and job flows

These figures from the ONS have not received the attention they deserve. They show that even in  the worst recession in living memory, 236,000 new businesses were set up - equivalent to 10.1% of all firms. These are businesses registered for PAYE or VAT, so they don’t count the minor consultancies, odd-job outfits or interior designing businesses set up by the unemployed. Sure, this is less than the 280,000 set up in the best year in recent times - but it’s not hugely less.
Similarly, although a record 11.9% of businesses ceased trading last year, this is not much higher that the cyclical low point, of 9.4%.
The creative destruction which Matthew Lockwood applauds seems to be with us - in both senses. It’s just that a small fall in business births, and small rise in business deaths, combined to give us a terrible recession.
These figures remind us of a fact which is hidden by all the talk about the workshy long-term jobless - that the pool of unemployment is fed by two quite fast flowing rivers: a job destruction rate which sees people flow from work to the dole, and a job creation rate which takes them in the other direction.
This paper by Jennifer Smith analyzes this in more detail. She estimates that between 1988 and 2008, an average of 11% of the unemployed left the count each month, whilst an average of 0.6% of workers lost their job each month.
The cyclicality here, though, might be surprising. As you’d expect, the job loss rate rose in the 1990-91 recession and fell thereafter. But the job finding rate did not fall in the recession. It just rose quite continuously during the 90s.
All this seems to corroborate what I wrote in my booky-wook:

We have a good chance of losing our jobs even in booms, and a good chance of keeping them even in recessions. Booms and slumps alter the odds a little. But even in the best of times, many of those in work are living lives of fear and insecurity.

This in turn means that macroeconomic policy alone is a weak tool for reducing the individual, idiosyncratic risks that workers face.

Comments

[Shuggy]

"booky-wook"

*Wince* Please...

[ian]

To what extent do the same workers keep losing their jobs? It is one thing to talk about turnover of jobs in the economy, but if its the same poor sod who loses his job every 12 months, the effect is rather different than the lowish figure of 0.6% of the workforce losing their job each month might suggest.

It seems likely too that the impact would be disproportionately distributed regionally.

("booky-wook" - its a pop culture reference.)

[Sean]

Wouldn't it be more accurate to say that the pool of unemployed is fed by one river (job loss) and *drained* by another (job creation)?