ifo Dresden: Employment Growth in Germany Primarily Through Existing Companies

Existing companies were drivers of employment growth in Germany from 2000 to 2016, according to calculations by ifo Dresden. Start-ups, on the other hand, only played a minor role in employment growth. “Providing government support for the expansion of existing companies is therefore the better way to create more jobs,” as ifo researcher Niels Gillmann explains. “Although promoting start-ups makes sense, it tends to create innovations rather than jobs.”

More jobs were created in the independent major cities, but more were also lost. With an average of 1.0 percent, net employment growth there was slightly higher than in the three other settlement types (urban counties, rural counties with population concentrations, and sparsely populated rural counties). At 17.4 percent, job fluctuation is significantly higher in major cities than in other settlement types.

That indicates that companies in independent major cities can respond faster to changed requirements by adjusting their staffing levels, which suggests that they are more productive. One reason for this is probably the strong regulation of the German labor market compared to other countries with regard to hiring or dismissing new employees. Companies outside the major cities are smaller on average, which means that bureaucratic hurdles are more of an issue. Small companies shy away from the effort of hiring new employees or dismissing old ones. An appropriate countermeasure would be to reduce bureaucracy, especially in small companies, e.g., to relax protection against dismissal or to loosen up rules on working hours.

The ifo researchers examined employment growth in Germany with the help of the Business History Panel of the Institute for Employment Research. Job creation and job losses were broken down into start-ups and growth as well as closures and downsizing of companies.