norway: business dynamics
TRANSCRIPT
. Insights on Productivity and Business Dynamics
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER © OECD 2020
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December 2020
Norway: Business Dynamics
Business and employment dynamics play a central role in market economies. Understanding the characteristics and
potential of businesses that populate the economy, in different sectors of activity and over time, and the extent to
which they contribute to job creation and reallocation is central for economic policy. This Country Note presents the
key findings of the OECD DynEmp project for Norway. The analysis is based on long-term patterns and trends over
the period 1998-2014, and does not cover recent developments associated with the COVID-19 pandemic.
Taking advantage of the DynEmp data infrastructure (Box 1), this Country Note provides evidence that is relevant
for policy making in Norway, taking into account the broader economic context of the country. The main results
from the analysis of Norwegian employment dynamics reflect, on the one side, the structure of the Norwegian
economy, in which small and medium sized firms (SMEs) play a crucial role for employment. On the other hand, the
DynEmp data also highlights that while net entry rates are on average above those in the benchmark countries,
particularly in high-wage, high-skill services industries, entry rates have declined markedly and exit rates increased
over the period to 2014. Moreover, although survival rates are similar to the benchmark group, young firms have
tended to grow more slowly in Norway in the first years after entry.
Highlights
Small and medium sized firms (SMEs) play a crucial role for employment, in both manufacturing and
services, while the share of micro-firms (2-9 employees) is relatively low.
The Norwegian economy is characterised by high net entry in services, but experienced significant declines
over the period, particularly during the 2008/09 recession.
In terms of average employment growth, both services and manufacturing firms perform below the rate
of the benchmark group of countries in the first years after entering the market, while survival rates are
very similar.
Employment dynamics
Size distribution
Knowing the size and employment distribution of firms within the Norwegian economy is crucial for policy makers.
It provides an understanding of the structure of the economy and an indication of the role of micro, small and
medium firms in overall employment dynamics. Such an analysis is particularly relevant in the context of the
COVID-19 pandemic, where the challenges experienced and the critical policy measures may differ for larger and
smaller firms.
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER© OECD 2020
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Figure 1 shows the average size distribution in Norway of firms with two or more persons engaged, over the period
1998-2014. The upper panel (a) treats firms as units, while the bottom panel (b) weights them by employment. As is
the case in the benchmark group, the figure shows that Norwegian employment in both manufacturing and services
is concentrated in SMEs (firms ranging from 10 to 249 employees). In services, more than 50% of employment is
concentrated in firms with less than 49 employees. The share of large and very large firms in manufacturing is similar
in Norway to the benchmark group (Figure 1a), although the average size of firms within these groups is somewhat
smaller in Norway, as evidenced by their slightly lower employment shares (Figure 1b). Conversely, the share of
employment in very small (2-9 employee) firms is also below that in the benchmark group.
Figure 1. Size distribution
Manufacturing and non-financial market services
Norway vs benchmark countries, 1998-2014
(a) Firm distribution, by employment size class
(b) Employment distribution, by employment size class
0
20
40
60
80
2-9 10-49 50-99 100-249 250-499 500+
%
Manufacturing
0
20
40
60
80
2-9 10-49 50-99 100-249 250-499 500+
Services
NOR Benchmark
0
10
20
30
2-9 10-49 50-99 100-249 250-499 500+
%
Manufacturing
0
10
20
30
2-9 10-49 50-99 100-249 250-499 500+
Services
NOR Benchmark
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER © OECD 2020
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Differences in the firm size distribution within sectors across different countries have been increasingly linked with
diverging productivity growth and innovation patterns in manufacturing sectors. A firm size distribution with a
higher share of large firms is in general linked to higher productivity. The relationship between size and productivity
is less relevant in the services sector, as Berlingieri et al. (2018) find that after a threshold of approximately 20
employees, firms in services are not necessarily more productive than their smaller counterparts. The Norwegian
firm size structure appears well suited for high productivity in this regard, with a smaller share of employment in
very small firms compared with the benchmark group (Figure 1b).
Box 1. The DynEmp project
The DynEmp project provides a unique comprehensive overview of employment and business dynamics across
countries over the last two decades. The main contribution of the project is the creation of a harmonised micro-
aggregated database with which business and employment dynamics can be analysed across countries in a
comparable way. The data are based on administrative records with quasi-universal coverage (such as business
registers or social security records). Assessing employment and business dynamics in comparison to those of an
appropriately defined benchmark group of countries can further inform and orient policy intervention. 1
The DynEmp database generally covers most sectors of the economy, but in order to enhance cross-country
comparability, the country profile focuses on manufacturing and non-financial market services (or “services” for
brevity). The data source for Norway is the business register, merged with information from the Accounts statistics.
See Desnoyers-James, Calligaris and Calvino (2019) for more details on the underlying data.
Unless otherwise indicated, the presented numbers rely on averages for the period for which data are available; for
Norway, this is 1998-2014. To allow an evaluation of Norway’s performance relative to that of other countries, the
Norwegian results on employment and business dynamics are compared to a “benchmark” group of countries for
which DynEmp data are available: Austria, Belgium, Brazil, Canada, Costa Rica, Finland, France, Hungary, Italy,
Japan, Portugal, the Netherlands, New Zealand, Norway, Spain, Sweden and Turkey. Unless indicated otherwise, all
findings presented also hold when the benchmark set is restricted to a more homogeneous group consisting only of
EU countries. Results presented in this paper are sourced from the DynEmp3 database as at August 2019. Owing to
methodological differences, figures may deviate from officially published national statistics.
Entry dynamics and growth of new firms
New firms are the engines of the “creative destruction” process (Schumpeter, 1942), through which innovation
replaces outdated production units. Start-ups and young firms are also the key source of job creation within a country
(e.g., Calvino, Criscuolo, and Menon, 2015). New entrants are therefore an important indicator of a dynamic business
sector and can be considered a source of potential future growth.
In Norway, net entry rates in the services sector are substantially above the benchmark average across almost all
industries (Figure 2). However, net entry has fallen over time in both the manufacturing and non-financial market
services sectors, with entry rates decreasing and exit rates increasing more strongly than the benchmark, particularly
during the 2008/09 recession.2 In non-financial market services sectors, the decline of net entry rates has been
particularly strong compared to manufacturing. Net entry rates in manufacturing tend to be negative, as they are in
the benchmark group, reflecting ongoing reallocation away from manufacturing in many developed economies.
Looking across industries, Figure 2 shows particularly strong net entry in high-wage, high-skill industries such as
IT, telecommunications and scientific R&D, while net entry in wholesale and retail trade, and hotels and restaurants
has been relatively low, and closer to the benchmark levels. Thus, while the low levels of business dynamism may
raise concerns, net entry in Norway seems to support productivity-enhancing reallocation across industries.
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER© OECD 2020
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Figure 2. Net entry rate
Manufacturing and non-financial market services
Norway vs benchmark countries, 1998-2014
(a) Across industries
(b) Over time
The policies shaping the Norwegian business dynamism are well developed in general. According to the World Bank’s
“Starting a business” indicator, measuring the number of procedures, time, and cost to start operating a business,
Norway is performing above the OECD average, ranking 25th out of 190 countries in 2020 (World Bank, 2020)3. The
Product Market Regulations indicator published by the OECD (2019) also indicates low administrative burdens.
-3
-2
-1
0
1
2
3
4
5
6
7
%
Manufacturing
-3
-2
-1
0
1
2
3
4
5
6
7
Services
NOR Benchmark
-12
-10
-8
-6
-4
-2
0
2
1998 2000 2002 2004 2006 2008 2010 2012 2014
Services
-12
-10
-8
-6
-4
-2
0
2
1998 2000 2002 2004 2006 2008 2010 2012 2014
% Manufacturing
NOR Benchmark
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER © OECD 2020
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Norway currently has a score of 0.75 on a scale ranging from 0 to 6. Nevertheless, the OECD 2018 PMR survey points
out that there is room for improvement in the efficiency of business insolvency arrangements. In particular, the time
a bankrupt person must wait until they are discharged from pre-bankruptcy indebtedness is relatively long (OECD,
2019), which may hamper entrepreneurship during crisis periods.
Entry rates are not the only indicator of a vibrant business environment. The growth of entering firms is also an
important driver for sustainable growth, job creation and productivity improvements. Young firms have a
disproportionate impact on job creation, and are more responsive to policy interventions and framework conditions
than incumbents (Calvino et al., 2016), reinforcing the importance of growth-enhancing policy settings. The growth
of entering firms is also not only an important driver for sustainable growth, job creation and productivity
improvements, but crucial for Norway to sustain high levels of wellbeing. High levels of productivity are vital for
firms to be competitive in a high-tax and high-wage economy such as Norway (OECD, 2019).
Figure 3 presents the average post-entry growth performance of cohorts of entering firms in Norway, comparing
them with the benchmark group of countries. In most of the entering cohorts, average growth is lower in Norway
than in the benchmark countries in the years following the entry. Firms entering in 2001, for example, catch up to
the benchmark growth only 14 years after their entry. The consequent entering cohorts perform slightly better than
before, however growth in the first years after the entry in the market still remains low compared to the benchmark.
Figure 3. Average growth of cohorts of entrants over different time horizons
Norway vs benchmark countries, 2001-15
(a) Manufacturing
(b) Services
Furthermore, the survival share of firms shows how well entrants are able to remain in the market, creating
sustainable competitive pressures within their industries.
Figure 4 presents the average survival share of different cohort of entrants in Norway and in the benchmark group
of countries, showing that low average post-entry growth cannot be attributed to unusually high survival rates. In
NOR Benchmark
0
10
20
30
40
50
3 5 7 10 14
% 2001
3 5 7 10 14
2004
3 5 7 10 14
2007
3 5 7 10 14
2010
0
10
20
30
40
50
3 5 7 10 14
% 2001
3 5 7 10 14
2004
3 5 7 10 14
2007
3 5 7 10 14
2010
NOR Benchmark
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER© OECD 2020
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both manufacturing and services, the average survival share is slightly lower or equal to the one in other countries
in early cohorts (1998, 2001, 2004). In more recent cohorts, survival rates have increased, but remain similar to
those of the benchmark group of countries.
For Norway, removing barriers to firm growth is important to help ensuring competitive pressures and allocate
resources efficiently into their most productive uses (OECD, 2019). Together with weak productivity growth and
relatively high labour costs, these factors represent a challenge in maintaining high levels of wellbeing.
Figure 4. Average survival share of cohorts of entrants over different time horizons
Norway vs benchmark countries, 1998-2015
(a) Manufacturing
(b) Services
Notes
1 Additional OECD cross-country studies based on the DynEmp database (such as Criscuolo, Gal and Menon, 2014; Calvino, Criscuolo
and Menon, 2015, 2016; Calvino, Criscuolo and Verlhac, 2020) provide the interested reader with complementary policy-relevant findings. 2 The figures are not shown for the sake of brevity, but are available upon request. 3 The regional average of the starting business score of OECD countries is 91.3 compared to 94.3 for Norway (World Bank, 2020).
NOR Benchmark
0
20
40
60
80
3 5 7 10 14
% 1998
3 5 7 10 14
2001
3 5 7 10 14
2004
3 5 7 10 14
2007
3 5 7 10 14
2010
0
20
40
60
80
3 5 7 10 14
% 1998
3 5 7 10 14
2001
3 5 7 10 14
2004
3 5 7 10 14
2007
3 5 7 10 14
2010
NOR Benchmark
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References
Berlingieri, G., S. Calligaris and C. Criscuolo (2018), “The Productivity-Wage Premium: Does Size Still Matter in a
Service Economy?”, AEA Papers and Proceedings, Vol. 108, pp. 328-33, American Economic Association,
https://pubs.aeaweb.org/doi/pdf/10.1257/pandp.20181068.
Calvino, F., C. Criscuolo and R. Verlhac (2020), “Declining business dynamism: Structural and policy
determinants”, OECD Science, Technology and Industry Policy Papers, No. 94, OECD Publishing, Paris,
https://doi.org/10.1787/77b92072-en.
Calvino, F., C. Criscuolo, and C. Menon (2016), “No Country for Young Firms? Start-up Dynamics and National
Policies”, OECD Science, Technology and Industry Policy Papers, No. 29, OECD Publishing, Paris,
https://doi.org/10.1787/5jm22p40c8mw-en.
Calvino, F., C. Criscuolo, and C. Menon (2015), “Cross-country evidence on start-up dynamics”, OECD Science,
Technology and Industry Working Papers, No. 2015/06, OECD Publishing, Paris, Paris,
https://doi.org/10.1787/5jrxtkb9mxtb-en.
Criscuolo, C., P. Gal, and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18
Countries”, OECD Science, Technology and Industry Policy Papers, No. 14, OECD Publishing, Paris,
https://doi.org/10.1787/5jz417hj6hg6-en.
Desnoyers-James, I., S. Calligaris, and F. Calvino (2019), “DynEmp and MultiProd: Metadata”, OECD Science,
Technology and Industry Working Papers, No. 2019/03, OECD Publishing, Paris,
https://doi.org/10.1787/3dcde184-en.
OECD (2019), OECD Economic Surveys: Norway 2019, OECD Publishing, Paris,
https://doi.org/10.1787/c217a266-en.
Schumpeter, J. (1942), Capitalism, Socialism, and Democracy. Harper & Brothers, New York.
World Bank (2020), Doing Business 2020, “Economy Profile of Norway”, World Bank, Washington, DC, https://www.doingbusiness.org/content/dam/doingBusiness/country/n/norway/NOR.pdf.
INSIGHTS ON PRODUCTIVITY AND BUSINESS DYNAMICS – DECEMBER © OECD 2020
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OECD Insights on Productivity and Business Dynamics
The global productivity slowdown and the simultaneous decline in business dynamism has prompted widespread
policy concern. Productivity is the ultimate driver of living standards improvements in the long run, whereas a
dynamic business environment is key in enabling job creation. Persisting negative trends can increase earnings
inequalities and exacerbate pressures on governments’ budgets, thus threatening social cohesion and political
stability.
While most existing analysis of productivity and business dynamics rely on macro-aggregated data, the OECD
MultiProd and DynEmp projects utilise a distributed microdata methodology to construct unique sets of harmonised
micro-aggregated statistics from confidential firm-level data. The resulting databases allow studying the role of
individual firms in driving aggregate outcomes and explaining the observed macro trends across countries and over
time.
OECD Insights on Productivity and Business Dynamics is a series of country profiles with a focus on the
microdrivers of aggregate productivity and job creation. It makes available, to wider audiences, analytical material
from the MultiProd and DynEmp databases that was prepared for use within the OECD.
Comment on this country profile is invited, and may be sent to OECD, 2 rue André Pascal, 75775 Paris Cedex 16,
France, or by e-mail to [email protected].
The contribution to the DynEmp project of Arvid Raknerud and Diana-Cristina Iancu from Statistics Norway is
gratefully acknowledged.
Please cite this country profile as:
OECD (2020), “Norway: Business Dynamics”, OECD Insights on Productivity and Business Dynamics, December
2020.
The findings, recommendations and conclusions expressed in this paper are those of the authors.
Neither the OECD nor the European Commission are responsible for any use that may be made of the information
contained herein.
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