A Study on Gross Job Flows of SMEs in Finland: The Importance of Employees’ Characteristics

The study is about gross job flows in Finland. The first part of the study contains an extensive survey of the literature. The empirical part of the study investigates the underlying magnitudes and the fluctuations of gross job flows in the Finnish economy in terms of employees’ education and experience, because the underlying heterogeneity of the labour force has been a severely neglected issue in the earlier literature on gross job flows. The gross job flows are calculated by applying longitudinal firm-level data based on Employment Statistics. The data cover four main sectors of the Finnish economy: manufacturing, construction, trade and business services. The results indicate that the underlying gross flows are large relative to net employment changes. The job creation rate has been higher for employees with university degrees compared to employees with only basic education within manufacturing industries. The underlying structural rate of job creation has also been higher for the least experienced employees compared to the population of the most experienced employees. In addition, the highly educated employees in the Finnish economy had a much lower propensity to lose their jobs during a period of extreme economic contraction. Thus, the results give support to the view that employees with only basic education and the least experienced employees carried the heaviest burden of restructuring during the great depression of the early 1990s. The countercyclicality of gross job reallocation (i.e. the sum of job creation and destruction) is not an apparent feature of Finnish gross job flows. This is due to the fact that during the slump of the 1990s there was a sharp decline in job creation. However, the excess reallocation rate (i.e. gross job reallocation minus the absolute value of the net employment change) declined during the great depression of the 6 1990s across the applied education and experience groups in the Finnish economy. This means that the volume of simultaneous job creation and destruction (i.e. the heterogeneity of labour demand adjustment at the firm level) declined during the slump of the early 1990s and, as a consequence of this, the underlying “structural change” among firms halted during the economic slowdown.