I work at this Olivetti Quattro water so first thing I did this morning is buying the paper I work for yes Olivetti Quattro and there's a very timely title on the labour market one has to do with the u.s. freezing down of job creation in the US and this is very much a snapshot of the situation with unemployment rising at 8% and this is a figure that is considered to be extremely alarming and then there's the reaction of US President Barack Obama saying that this figure which is synonymous with a sharp reduction number of jobs and with halt of the recovery is due to the eurozone and then there is another information which is evidence here on the paper concerning Europe and it is just as alarming as the other piece of news in April the unemployment rate in the eurozone climb to 11% the eu-27 is MiFi at ten point two three percent and according to Eurostat of twenty four million six hundred thousand unemployed these are the facts hence the subject of today's lecture is the of the utmost importance we shall hear from Professor Holt a banker it was the most distinguished expert on all issues concerning the labor market about potential solutions in the US and Italy to revert this trend that his humming geopolitical equilibria worldwide as you know we had a remarkable crisis in Europe of sovereign debt in Italy as it's true for the rest of Europe there's a problem I eat how to revert a trend how to lay down the basis for a greater stability to try and create more dance unfortunately in Italy we are not going to do very well because we are in the midsummer reception 1.2% is the reduction of our GDP according to our government data and this is going to possibly climb up to 1.7 and in Euro Europe the unemployment rate is very high and that growth is absolutely stagnating Porsche are the potential solutions are to create more jobs so this is the key issue one of the questions that the way to raise de profesor healthy wanker is whether we can see pretend a solution for the middle time of where the economy is recovering but not creating new jobs this is one possibility do you think that we can grow without creating new jobs is this a possibility then second question but I'm sure the professor how they wander is going to reply to these questions with these lecture course other models that can potentially increase and promote job creation in Italy for example we had the excellence of the SMEs in Italy most of the productive fabric of the country is very much based on SMEs is it still a model that is worth exporting that is still viable itself then third question are the new companies creating new jobs what about old and established companies are they going to destroy jobs these are very relevant issues and this is what is at stake I believe this is the possibilities we have to have a future at all been Europe now having said as much recording again most alarming to us as we see in the papers today I'd like to give the floor so you don't wait to profess a hold a longer for him to present his lecture after that I think we can have a Q&A time I for myself have a number of questions that I'd like to raise the professor holding one car and then obviously we'll throw the floor open the subject is extremely important expects you to raise many questions or so over to you professor very nice to be here they turned on the mic so you can act and hear me or at least the translator can so at this conference I know age is a key theme and a lot of the work is on on age of workers particularly I'll say concerns about young workers unemployment for young workers I'll say especially in European countries it is incredibly high so I'm also going to talk about age but I'm actually going to talk more about age of businesses than then age of workers that that's going to be my theme so hopefully I can so so as the opening remarks and I think I know having talked to a number of folks who've who've already chatted at this conference key theme is is is is obviously they both the US and and now and especially Europe or are still very much struggling and they're they're struggling in their in their labor markets in terms of employment growth and employment growth and and unemployment and so it's not surprising as again the opening remark suggested that there's an enormous amount of interest in and who creates jobs what's the job creation process like and and I'm going to talk quite a bit about that so one of the one of the key themes I'm going to talk about is is the role of small businesses in job creation in the United States at least and again given the introduction I think this must be some perception here in Europe there the conventional wisdom I'd say at least Intel the work that I'm going to talk about today is that small businesses were the primary net creators of jobs if you do a Google search on US presidential State of the Union addresses and you go back to at least Ragan every president so this is not a democrat or republican point of view all of them have have made the statement that small businesses are the primary net creators of jobs the typical statistic is that two-thirds net job creation comes from small businesses and so I want to talk about that wisdom is that right I'm gonna argue if well it's technically true it's somewhat misleading indeed what I'm going to talk about is it's it's not the size of the business that matters it's the it's the age of the business that matters that that that it will turn out to be the case the evidence I'll show is the contribution of small businesses to job creation is coming from the role of business startups and fast growing young businesses and that's vital and and you some might say well isn't this just a just a reinterpretation of the existing evidence and I I think there's some truth to that but I think it actually makes you think about the process of job creation in a in a different way than then if you just use the notion of small rather than young so you're gonna see all my my last slide I'm basically going to be arguing it's it's better to be young than petite that's sort of the that's sort of the theme of the of the talk now to get there I want to I want to put the role of startups and young businesses into perspective so I'm going to talk about jobs from a whole bunch of different dimensions to help us understand the job creation process most of my in fact all of my evidence is going to be from the United States although I have can I say studied European economies and and emerging economies on these issues and so I I will at least occasionally make reference to what I think we see in European and and emerging economies as well so in order to do this I'm going to I'm actually going to use some kind of playful illusions here in terms of talking about businesses so oftentimes you'll see in my slides I'll talk about large businesses they'll be my elephants okay and I'll talk about small businesses and they'll be my mice all right and and one thing that's true and I know I think that this fact is very much true in the US but I know is also true here in Italy and in Europe is most businesses are small so let me just I'm going to give you those statistics in terms of the United States but but this is something we see around the world so in the United States to get to fix ideas there's roughly six million businesses that have at least one worker and I'm gonna be talking about those since I'm about job creation I don't want to talk about the the self-employed they're an important group who don't hire workers that I think that's a different different kind of topic it's related but it's not the same I'm gonna talk about when I mean a business I mean you've hired at least one worker and so of the of the six million or so businesses the vast majority of them are are these mice these micro businesses they have less than ten workers and only a very small fraction are elephants and out of that six million you can see there's less than twenty thousand businesses that have more than 500 workers so so when thinking about the business population it's useful just to know most businesses are small now while that's true what's especially true in the United States and this very does vary across the world is that well is that while most businesses are small most workers work for large businesses so so this is especially true in the United States is that we have a we have a very skewed size distribution of activity I'm not saying that's not true in Europe and actually off often it is the most extent true in advanced economies where you see that this breakdown different is is if you go around and look at the emerging economy so so if I if I showed you this chart for example for India you'd be struck by the incredibly large share of employment accounted for by micro businesses and even smaller than my mice because oftentimes the they are they are actually the informal firms that account for a large fraction of activity so so something's going on in terms of the distribution most firms are small and most workers work for large businesses and so this is in the cross section but it's it's helping us kind of understand the the the nature of the distribution of jobs and firms now what's what's limiting about just looking at the cross section is and I think I think we're all painfully aware of that these days and get and given given the news obviously over the last five years but even recently but the world is obviously constantly changing businesses are subject to a whole variety of changing business conditions everything from the kind of financial crisis that we've looked at but changing technology changing patterns of trade changing patterns of demand and so what's what's interesting and a challenge and this is gonna be very much the theme of my remarks of modern advanced economies is there is they're constantly needing to reinvent themselves and so I want to talk about what evidence we have about that constant reinventing itself and and this is critical for who for helping us understand the process of job creation so this slide where I've got some businesses going up and some businesses going down it's just to help us begin thinking about that process that we what we see in can I say in all advanced economies is we see this process whether it's a good year or a bad year we see some businesses expanding and some businesses contracting and I want to talk quite a bit about the evidence for that what I'm going to call creation and Destroy shrim processes and I'm gonna use those terms because I'm gonna think about this in terms of jobs so so when you when you think about that again I want you to think about the terms I'm gonna use I'm going to use the term job creation for counting up all the jobs for businesses that expand including those that start up and I'm gonna use the term job destruction for all the businesses that contract and including those that shut down and and it's you know it's it's this process which is critical for all the hires and separations that we see in the economy a small aside and I think it's actually more than a more than an aside but it's not the theme of this lecture there's actually a much even a much higher pace of hires and separations than job creation and destruction that is we see lots of businesses expanding past separations they have quits and they need to replace workers and actually interestingly we actually see businesses that are contracting oftentimes having more separations than they actually and they need and so they're actually also doing some hiring and and that's interesting all by itself just that that churning of workers on top of the turning of jobs it's not my theme today but it's important to recognize that's going on that's part of the also the way the economy's reinvent themselves we reinvent ourselves I'd say in at least two kind of basic ways we move jobs across businesses that's what I'm mostly going to be about and then even for existing businesses we move workers across those businesses and I'm not going to be so much about that but it's it's important you're gonna see in the next slide an enormous pace of creation and destruction but actually hires and separations are even larger than that so so so what is the pace of creation astruc destruction and again I'll use the the US evidence this is evidence that covers the entire US private sector and actually it's a database that covers every establishment in every firm in the United States for a long period of time and so so so let me describe the two key statistics and then some of the underlying statistics so so one key statistic is the pace of growth job creation okay and again I've already just described that conceptually but let me repeat it it's the I'm gonna add up all the jobs from businesses that expanded from one from one march to the next this is a March to March number and that number is enormous in the United States on an annual basis it's close to 17 percent so let's let's make sure everybody understands how big that number is and how to interpret it what that number says is if you go into the US economy in a typical year over the last thirty years and you go you go on and on in the week including March twelfth that happens to be the date in which do we measure things and you ask how many of the jobs that existed at businesses didn't even exist the year before and by that I mean they didn't exist in a sense the business didn't even exist the establishment wasn't there or the firm wasn't there or the business was smaller a year ago and that's that's seventeen percent of US jobs right now if we had no job destruction that would mean the US would be growing obviously at a 17 percent net growth rate obviously that's not what's going on we pay attention mostly to the net number so what so why isn't the u.s. even though it's got all these businesses expanding and starting up and I'm gonna talk about that in just a second it's also got an enormous pace of job destruction so if I go conduct exactly that same experiment and I go and ask on a given March I ask what fraction of jobs that are here this March aren't even gonna exist next year are gone because the business has shrunk they've either shut down the establishment has shut down or the firm has shut down and I'll explain that distinction in just a second or the businesses contracted and you can see that's closed that's over 15 percent so the net number which is which is what we're very much interested in in seeing being positive obviously and that's not been so true for for both the Europe lately and has been kind of anemic if you read the jobs report from the United States yesterday so we care about the net number but underlying that number isn't he is an enormous pace of creation and destruction so one thing you can also see in this slide is that new firms and new establishments as well as exiting establishments and exiting firms play a critical role so so I need to needed to make sure you understand the distinction between establishments and firms and so I'll use a large retail chains that's sort of the easiest example and I'll use use one that's that sort of very well understood around the world I'll use Walmart okay so so when I use the term firm I mean the entire firm Walmart when I use the term establishment I mean like a Walmart store at an individual location so you can see for example there are there's there's a healthy amount of job creation from existing firms that open up new locations that's what I mean by saying new establishments of existing firms all right but but there's also the bottom bar R is new firms and what do I mean by that I mean I mean literally new firms I mean firms that did not exist before and I don't and I don't just mean they're new because there's been some merger change or some ownership change I mean there's a new firm with all new establishments so it's what we mean is a startup this business did not exist in any way in the previous year and you can see that's about you know it's not the whole story obviously but that's about in gross sense and that's important to think about in a gross sense that's about one fifth of growth job creation hardly the whole story lots of job creation and destruction from existing establishment existing firms and also lots from exiting and entering establishments of existing firms but I am going to focus a lot on on the role of these startups you can also see a healthy amount of job destruction is coming from exiting firms - so entry and exit is playing an important role Solomon I'm gonna dig into these numbers in a number of different ways now before I dig into these I want to go back to the conventional wisdom so President Barack Obama President George Bush both one and two President Clinton President Reagan they've all made this statement and also I'll say many other policymakers I don't I don't mean to just pick on the presidents but but they are some of the most prominent spokesman for what's going on in the United States have all said small businesses are the primary net creators of jobs is that true well in a in a technical way the answer is yes now though there are some statistical issues that I don't want to go into details about what's what's known as regression to the mean but even if I control for that technically the conventional wisdom is true so so what is where's that Technic where's that conventional wisdom coming from what you do is you compute the net employment growth rate I'll say on an appropriate employment weighted basis because you don't want any what you want to you want to wait up so these these numbers add up to the overall economy you compute the net employment growth rate for every type of firm firm in terms of firm size classes and you classify firms in this graph in terms of their their size last year all right and the only exception to that is for startups since they didn't exist as last year you put them in the size class that they entered that's how this is done there's a standard thing that's been done by many statistical agencies around the world including in in United States and and it's pretty striking actually that then that the net employment growth is obviously much higher for this for the small business and indeed it look it's especially high for the mice that I was talking about okay so so it it looks like there's something going on here and indeed if you also if you if you do the calculation where did that two-thirds number come from the presidents often use well if you add up they they use the end of a liberal definition of sub small they go all the way up to 500 I'm sure that in the Italy 500 doesn't seem like a small business but they go all the way up to 500 and if you count up all the jobs created by the green bars here under 500 you would you'll get 2/3 and so so we could stop the lecture here and say ok the president's the united states have been right and let's go on and so so so so let's think about what the policy implications and indeed I sort of say somewhat unfortunately that's kind of what's happened often in the United States there are there there has been substantial policy both can I say both by Republicans and Democrats in the United States they that have essentially used this evidence to advocate particular kinds of policies in favor of small businesses so so I want to dig into this is you know what's going on here now to get there or that I first now I want to dig into the just helping us understand the role of the magnitude of business startups and so remember business startups accounted for about one-fifth of gross job creation but that was all the jobs being created so now let's compare the magnitude of the job creation from startups to net job creation and I've intentionally took to two to make this point I've actually taken there's probably even more dramatic if I didn't take periods of rapid expansion I took the last period of a rapid expansion in the United States so the last part of a rapid expansion was March 2003 to 2007 and in a typical year over that year the US would create 2.5 million net new jobs and and for those of you who are you know aficionados of us statistics so yesterday the jobs report there were there was a net creation of 69 thousand jobs that's a very small number 2.5 million you know flee it's this is a not quite the right thing to do but roughly divide 2.5 million by 12 and so any month in which the US gets over 200,000 jobs things are going okay 69 thousand that's pretty anemic all right and so that obviously this has been made headlines around the world this morning so net job creation in a robust economy was was in the neighborhood of 2.5 million net new jobs notice that startups alone accounted for 3 million net jobs by themselves all right so so but you know just as I said before you got to be careful about statistics you you need to be careful to interpret this some people have taken this graph I've generated this graph so some people have taken this graph and run with it they've run with it in the following way they said look startups are responsible for all net job creation is that right no I've actually already given you the evidence that suggests otherwise there's lots of other kind of businesses creating jobs startups are part of this creative destruction process but nevertheless this graph does tell you the magnitude of startup creation is quite large relative than that job creation so it's an important component it's something we need to pay attention to and so that I'm gonna dig into that process now it turns out most startups start up as mice and I think that's an important thing to think about most new businesses start up as very small businesses right so of that 3 million jobs coming in every year from startups that's a lot of jobs they're coming from micro businesses right now to be fair there so you know there's some that start up you know a little bit higher than obviously the mom of the mice but nevertheless they tend to be small and and so now you can almost see where the challenge to the conventional wisdom is coming from all of the startups get allocated to the small businesses so what were what we were actually seeing in the previous graph about small businesses was really the role of startups and we're also going to see the although fast-growing young businesses so so what do I mean by that so this graph shows you the original graph I showed you before for the conventional wisdom and then what it does is it controls for business age and says suppose what I do is I take out the effect of business age in this relationship then that's the blue bars and used and you see there's no longer any systematic relation between net growth and size it's gone so whatever was the relationship between net growth and size it was driven by the role of age it was not there is nothing left once I control for age now we've already understood part of that process so part of what simply going on is that startups are small by construction they only create jobs in their first year that's that's the nature of the process and so if I do a simple tabulation of net growth by size I'm gonna I'm gonna I'm gonna make it look like then the small businesses are doing all the work and then technically that's right but it's actually coming from this crew this startup process now I'm not gonna there's a there's lots of analysis under underlying this and I am gonna dig more into this a bit but but one remark to make is and if you're interested I could and you contact me and I can I can provide you the more detailed evidence one interesting thing to look at is how well does small mature businesses do and actually small but true businesses in the u.s. they're actually they have they have their net job destroyers not net job creators okay so so so the the job creation prowess of small businesses again is coming very much from the role of startups and it will turn out young businesses now again I want to I want to dig into this process a little bit let's think about what happens after you startup what happens to the typical startup well if i if i pay attention to the blue bars and you can see i've introduced another animal here so i've got mice and i've got elephants and then i've got Szell's and and and this is overly simplistic I know but I I want you to think about the gazelles that's essentially how some mice become elephants all right there are businesses that take off and if you look at the blue bars in this graph these are the these are the surviving businesses by business age and so if you want to ask who are the fastest growing businesses in the United States conditional on survival it's clearly the young businesses all right there's a clear monotonic relationship and especially the very young but but this graph also shows what what what's the typical outcome for a start-up it actually fails all right so the terminology I want to use is there's a very rich up and out dynamic up or out dynamic young businesses some of them take off and we're gonna see that in in detail in in just a minute some of them take off those are my gazelles for today's lecture but but most of them fail and and this is already beginning to help us think about the challenges that you face in an in a modern economy if indeed what's going on we're constantly reinventing ourselves with startups coming in and they're you could say they're pushing the frontier out in terms of new products and new processes new ways of doing business if if that's what's going on in an ex successful economy its it's it's kind of a chaotic turbulent environment it's an environment where there there's lots of intrigue there's lots of growth but there's also lots of contraction and failure and that's a challenge right because because because failure is a hard thing to to take into account so so look so again I want to dig into that process a little bit more so so let's look at these high-growth young businesses let's look a little bit more deeply at these businesses and so again what was striking in the previous figure was that young businesses were the fastest growing business the United States now is it the case that all young businesses that survive are fast growing no actually there there's the most heterogeneity amongst the young businesses of any kind of businesses in the United States so what this graph shows is the 90th percentile growth rate and the 10th percentile growth rate and a measurement point this is all employment weighted so I'm not and this is not being driven all by just just tiny businesses where because if a business that's one has one worker and goes to two that's obviously very rapid growth rate so I employment waited all this it it's quite striking just it's just how heterogeneous you could say all businesses are but especially young businesses but but I actually I want to point out a different aspect of this not just the heterogeneity I want to point out the skewness of the growth race so I want you to pay attention to how how large the 90th percentile is an absolute value relative to the 10th percentile so so notice for example that for let's take age one businesses they're and they're at the 90th percentile they're they're way above eighty percent growth rate okay whereas the 10th percentile is is about 50 percent shrinkage all right so that's enormous heterogeneity but that's it that's a big gap between the 90th and the 10th in terms of absolute magnitude so so remember my first graphs were about the skewness of the levels of employment I think an important thing also to take into account is the skewness of the growth rates and and and I mean and I'm gonna in just a minute tell you why how critically important this skewness is all right but you can see if nothing else statistically there is an enormous skewness in the growth rate distribution especially for the young businesses so so why is this important so now I'm going to go back to this concept ice I started with early which is the overall pace of growth job creation so so I'm going to now and kind of provide an answer of who creates jobs if you add up the job creation from startups which is close to 20% and then you add up the job creation from these fast-growing businesses and they are disproportionately young you're at you're at 70% of US job creation so it's a combination of startups and fast-growing young businesses they are they are the creators of jobs right now I think that that that those findings and I'm gonna I'm going to present a very simple almost playful way of thinking about this helped us think about what what are the possible barriers to job creation or what are the obstacles that economies face if this is true if startups and fast-growing young businesses play a play an important role what are the challenges that such businesses face now before I get there some of you should rightfully if you haven't seen these kind of numbers before if you haven't seen these kind of numbers on job creation and destruction before you might ask why can that make sense why would an economy this is supposedly successful economy like the United States us at US has had a very robust you know at least pre-2006 robust set of decades what why does it have such a high pace of creation and destruction why does it have so much churning of firms and jobs and the answer is the most of this at least when things are going well when the economy is not distorted then I'd say recently looks like it's increasingly distorted but when the economy's not distorted the creations moving resources towards more productive businesses and the destructions moving in a way from less productive businesses and so one of the things we found in the same kind of work really the same kind of data that that's helped us understand this job creation and destruction process is we've looked at measures of productivity for example across businesses and and one of the most striking findings is go inside a very narrow industry and I mean let me make sure you understand what I mean by a narrow industry I mean for example take automobile assembly plants okay or take take something since we're all obviously wearing clothing take take women's blouses okay as an industry okay some some industry some particular narrow definition of products and take all the businesses that produce in that industry in your country and can I say actually I know this holds in literally every country that we're talking about and I'll talk a little bit about how it differs between the US and and and around the world so so go inside any one of those industries there's almost as narrow as you can imagine okay by narrow narrow classification into a particular kind of good or service and take the business at the 75th percentile of productivity and the measure of productivity here I'm using is as refined a measure of productivity as an economist can come up with it's what we call total factor productivity and it's hard there's lots of measurement issues but we've worked very hard with some success with is still measurement challenges to measure this at the at the establishment in the firm level so take the business at the 75th percentile of total factor productivity and then take the business at the 25th percentile and that gap in the United States is is about 30 percent 30 log points that's a huge gap you know that would just just to help you understand we make a big deal at the at the aggregate level if you know if productivity goes up from 1% to 2% you know if you could somehow magically and this is the problem of course if I could somehow magically move all the resources away from the 25th percentile business to the 75th percentile business I could I could raise productivity in the United States enormous lee and so so when you see that you might say well why isn't that going on why don't we see that and the answer is it is going on it just takes time and resources that's exactly what the creative destruction process is all about is moving resources away from the less productive to the more productive and so that so if you ask yourself why is this going on well what we find is you could say what what why is there so much heterogeneity and productivity well can I say most of us have worked mono actually maybe a lot of us in this room haven't worked for the private sector but but if you but if but if you talk to folks in the private sector even again businesses doing seemingly the same thing they vary dramatically in their productivity why well we're studying that some of its manager ability it's its entrepreneurial ability some of it is they were in the right place at the right time they developed the process and the combination of processes that work to produce this product right by the way it actually is related to other other kinds of things so so given a limited time I'm not going to go into great detail it's important to realize that some of this creative destruction is not moving resources so much simply for productivity reasons but rather moving resources away from low demand products to high demand products so demand matters here as well some of its costs so lots of the reallocation is moving resources away from even though this business might be very productive in an engineering sense it's not particularly profitable because it's it's operating in a high-cost region for example and so businesses are constantly relocating this is can I say this is the challenge partly of globalization is exactly what's going on is companies are constantly seeking ways to produce things where they they can create the most value and what does that mean I think it means you want to be the most productive you want to have the highest demand for your product and you want to have the lowest costs no not always those things go together by the way but those are the kind of things you're worried about oops so so is the it is the dynamics that I'm talking about connected to this yes so let's go back to that upper out dynamic that I talked about before so remember I said what happens to most startups they fail well the good news is I'll call good news exits a hard thing right so when a business fails lots you know that that's costly but the good news is when things at least are going well the businesses that are exiting are much less productive than the incumbent businesses so that's a good thing for an economy if indeed you're if you're trying to experiment and reinvent yourself the businesses that should be contracting and shutting down - the ones creating the least value so that's a good thing and you can also see that that my fast-growing businesses my young businesses they are amongst the most productive businesses in the economy so that's a can I say that's a win-win kind of situation in a sense that that when the upper out dynamics are working well the startups that survive are the most productive businesses they're the ones creating the products and the processes that are creating the they have the most value and they're creating lots of jobs and so where it's a win-win in the sense it's good for jobs and it's good for productivity again that's when things are working well ok and there's lots of reasons as we'll see in just a minute things can go wrong so let me skip this slide so so so now I want to talk a little bit about where things can go wrong and the way I'm going to do this is I'm soso economists you could say for better or worse right down mathematical models to describe how they think firms and workers are interacting with each other and and the last thing I want to do in this in this setting is write down such a model and so instead what I'm going to do is I'm going to kind of give you almost a picture book version of some of the barriers that that businesses face and I'm this is this is way too simplistic I know but I I think it helps me at least talk about in terms of this upper out dynamic this startup process where things can go wrong so so let's talk about startups so if if you're an entrepreneur and you have it can I say any hope of being successful you need what do you need you need an idea ok you need some some product or some process and and that and I mean that in the broadest of senses it may mean that simply you will recognize a market opportunity there's there's no coffee shop at that corner there's no good restaurant that serves this kind of food in this neighborhood so it doesn't have to be you know oftentimes I use product or process but I mean this in the broadest of senses okay so you need an idea right now one thing that we've seen in the data and I'm not gonna bring this so much but what we see remember I told you there's enormous heterogeneity and productivity across businesses that's especially true for for new entrepreneurs so the productivity is enormous ly heterogeneous across those businesses so that then the next thing you need obviously and this is critical and there's gonna be this going to be one of the themes about already if if you're gonna if you're gonna take that step and you're going to open up this new business somebody's gonna have to finance it all right and so financing plays a critical role now let's suppose you've got an idea and you found financing the financing may have come from many sources and make may have come from Europe from your own sources in the United States historically lots of the financing for example has come out of home equity and so people use their the value of their houses to put up the resources to get their business startup can I say one of the consequences of the collapse of the housing market is that's much less feasible than it was pre 2006 right am i saying that that's the whole source of the crisis no I'm just telling you making us think about what some of the barriers are so let's suppose you've got an idea you decide to open up and the business is born okay and and and and much of my remarks are that that's obviously just the beginning of the story the the rich dynamics comes it turns out oh I should have said I forgot this at this point a key point is that most of those business startups are small all right so so and that's kind of for you could say for good reason does that suggest that things are going wrong no actually partly because there's so much uncertainty about whether the idea is any good and there's uncertainty both by by both the entrepreneur but also by financial markets you know so somebody doesn't say okay yeah this is a great idea you're the next Google here I'm gonna go give you this enormous amount of financing it shouldn't work that way you what one actually has to establish that that idea is a sensible idea but amongst these startups obviously some of them are my up businesses and some of them are my out businesses some of them are my businesses they discover they learn about yeah they're actually a good manager they have a good idea they have a good product they have a good process they have a good location and they take off and and again let's go back to my my numbers on job creation adding up the contribution of business startups and and the fast growing young businesses I get an enormous fraction of job creation from such businesses they play a critical role my gazelles but but I also need to recognize and and this is critical here that I can't forget that actually most of them are failing and so if I forgot if I've got a system if things are going badly so that the the businesses that are failing and the workers who are losing their jobs but with failing businesses can't go can't find other jobs because there's there's market failures and distortions and labor markets or product markets or financial markets this isn't gonna work very well right and this is all gonna work if indeed we can both tolerate the successes that's sort of what we want I'll talk about the high-growth businesses but we we also need to have a system that this enables us to absorb all the destruction and all the failure now it's also the case that that I want to emphasize in my my overly simplistic characterization of business dynamics of models of business dynamics that that that the we shouldn't just think about the startups and the gazelles and that sort of process all businesses are subject to a variety of kind of shocks and so I've listed here in picture form globalization IT oil price shocks for example obviously economy-wide shocks and financial shocks and and all such businesses and that's that's actually part of the creative destruction process just because you were a gazelle 20 years ago doesn't mean you you got the formula for success today the question is can you can you adapt to the changing economic conditions it is that a bad thing that just your past success doesn't mean current success no that's actually again very much part of the the healthy market dynamics that we want to talk about but but we also know and again this is this is a very simplistic characterization of business dynamics that many things can go wrong and lately we've been especially interested in the role of financial markets and as I've said financial markets play a role and I think this is important for policy purposes don't just think about the financing associated with the startup process that's only part of this story indeed can I say the you know markets may be working out fine still for startups but but what's critical is if you're a potential gazelle is there financing available or those markets working well and I think lots of us are concerned that financial crisis has has caused problems for the financing both of startups but also for fast-growing young businesses and and and so I'm going to end my remarks by asking is there any evidence that this is what's going on and and the evidence I'm going to present is only very suggestive but I think kind of provocative about what's been going on in the startup process in the United States so that can I say the good news is this is my last slide so so what am i showing here I'm showing you showing you two very basic statistics and the more interesting statistic is the blue bar so let me talk about the less interesting statistic just so it the the red bar is just the average size of a new business firm in the United States and you can see is related to something said before it's small it's it's measured on the the right axis its small okay it's about six workers okay and it it has some fluctuations but it's been pretty steady where the blue bar is the firm start-up rate all right and so by the way the combination of this the start-up rate plus the number of workers created by each new firm is is the job creation from startups so these are the two ingredients I've just sort of decomposed that job creation in terms of startup rate itself and then the average for each of them and so so so so I want to focus initially I'm sure everybody's thinking I see all kinds of things in the blue bar I'm going to start with the last the the recession so so it's pretty striking that the start-up rate has fallen dramatically in the United States since 2006 all right now is this evidence that it was by the way was that that there was it was financing problems that caused this no I by the way I am working on that but I don't wanna and I'm happy to talk about what we know and don't know about this process in if we want to talk about those questions but I think it is pretty striking that the job creation rate from and I also got that evidence but I'm not going to give you another slide I promise the job creation rate overall in the United States economy has has slowed dramatically in the recession and I've shown you evidence that it startups and fast growing young businesses that account for a large fraction of such job creation and if if you cut the start off rate off if that falls dramatically that one is obviously the start-up rate itself is down but but by construction there's going to be fewer young businesses yeah you can't invent young businesses unless you have startups all right so so we've obviously seen and I have evidence of this the the fraction of activity accounted for by young businesses has fallen dramatically in this recession and so now I'm sure you guys have seen other things and looking this figure there's not only a big cyclical decline but there's also a huge secular decline in the startup right and so for those for those who were kind of took the view and indeed you could if you looked listened to the earlier parts of my lecture I've been very much advocating the critical role that startups and young businesses play for for both job and productivity growth and and the characterization I've given is they are critical for the u.s. reinventing itself for for developing new products and new processes they are the part of the economy where there's lots of experimentation that goes on and it's where you know can I say we bring out some of these examples which are which are my gazelles there's where the googles come from ok and if in many ways you if you look at the blue bar you have to say that the US is doing less of that experimentation now than it used to be so over this this this graph goes from 1980 to the President and and which is the what year has the lowest pace of startups over the entire last 30 years 2010 okay and it's dramatically down from from the 80s and in the 1990s what's that do to partly due to cyclical factors as we've just been discussing but there's also something else going on I'm working on that but I probably want to bring my remarks to to a close I said this is my last slide but my last chart I'm gonna give some final remarks but but this is raising questions in the US about you know is the is part of the reason the u.s. is struggling in its recovery is it doesn't quite have this entrepreneurial dynamic that it that it used to have in earlier recoveries so so so truly last slide hopefully it's clear what the what my messages are a key part of my message was to provide guidance about the conventional wisdom of the role of small businesses in job creation what we find in the evidence is its is its age not size that's critical its startups and fast growing young and small businesses that are creating lots of jobs not so much small per se but but but I in some ways I want to avoid you could exchanging one once bad soundbite for another bad soundbite okay so so I don't want it your to go away saying oh it's all about startups and and young businesses indeed I hope my remarks have said you need to think about where they fit into this creative destruction process they are part of economies reinventing themselves and so yes they play a critical role but we need to think about that in terms of yes this is a way that modern economies reinvent themselves is through entry and exit through creation and destruction and again when things are going well that's paid off in terms of both jobs and productivity put it but it's also the case that once you once you recognize it startups and young businesses it makes you think you matter that little sort of silly little picture picture book version of firm dynamics it makes you think about all the challenges and barriers that startups and young businesses face all right and so you can easily imagine where things start breaking down can I say especially in a financial crisis but where they might break down in in lots of countries so so now let me kind of finish on those remarks I think an interesting thing to look for for many countries is what's going on with your start-up rate do you actually do you actually have a healthy pace of startups but but again that would be a mistake to only look at that okay what I think you want to specially be looking at is do I see the kind of upper out dynamic that I described here is it the case that the productive profitable high demand high productivity low-cost young businesses do they take off and and can I say there is evidence that the US has historically been especially good in its post entry performance and there's also evidence that if as you look around the world if you if you if you look let's not think about u.s. versus Europe where obviously Europe struggling right now but but let's look at the countries really struggling the emerging economies do they have a shortage of entrepreneurship and emerging economies no actually there's you could say there's too many entrepreneurs there's an enormous number of these mice the problem is none of them grow okay none of them take off all right and so that's kind of the challenges do you have an environment that's gonna allow for the gazelles to take off and and when things are going well historically in United States that's been critical you could say in Europe we should ask the question you know are there gazelles and and what are the barriers for them taking off as we go around the world we know for a fact that indeed that is kind of the problem there are it's not a shortage of entrepreneurship per se there's lots of lots of people running their own business but they're but they're basically you know carts in the street and and and and they're and they're not going to to be the source of the kind of job creation that I talked about today so I'll stop there and thanks very much we're a syllabary peridot multi-schema cause it's in it he fire the question is thank you thank you very much there are a couple questions that come to my mind and then with her the floor open for discussion the first thing I'd like to ask is as follows we the sand that is young startup so that's create more jobs in your analysis especially on the US market could you ever imagine what would happen if with the recession we wouldn't have any startups do you have a plan B as it were you just showed us a chart on the decline in the number of startups created in the US so this is the first question then two more questions related to Europe and first so given the fact that we are at a time of crisis in the eurozone how can we push how can we encourage promote the development of startups of young startups do you think we should opt for tax allowances and the cutting down of red tape do you think this is a way way forward now with an eye to Italy then this morning we talked about the private industry in Italy we have also prevalent role being played by civil servants with over three and half million civil servants in the country do you think that we have to size them the public sector will together in Italy and in Europe as well then very last then my very last question again on in Europe important decisions are to be taken in Europe hopefully such important decisions should be taken at the European Council at the end of June encouraging the adoption of a number of initiatives to see the recovery of the eurozone after the very hard line that has been adopted so far there are a number of ideas now at stake one is very much supported by the Italian government and I would like to hear what you think about it do you think for example that the can leave the two degree was a potential creation of no job so do you think that the idea there has been put forward by the Italian that is supported by the Italian government that of the golden rule whereby we would have a different evaluation of expenditures for investment in the u.s.a we you don't have the stability pact do we do have it in Europe and we have very tight budget constraints that could ease up resources for development of these are the questions of that