By Daniel Hunter

Young firms play a crucial role in job creation. Improving product, labour and capital markets and bankruptcy laws would help them foster employment growth and support the economic recovery, according to a new OECD report.

The Science, Technology and Industry Scoreboard 2013 says that young firms (5 years old or less) accounted for only about 20% of non-financial business sector employment over the past decade, but generated nearly half of all new jobs.

During the crisis, most of the jobs destroyed were the result of old businesses downsizing while net job growth in young firms remained positive (see attached table).

"Giving dynamic, young firms, like startups, a better chance to succeed will create jobs and boost growth," said Andrew Wyckoff, OECD Director of Science, Technology and Industry at the launch of the report in Istanbul. "This new evidence highlights how important young firms are in many countries. Policy makers need to rethink their approach to reforms to help young firms thrive and not overly favour large incumbents who sometimes crowd out these start-ups."

Reforming bankruptcy laws in particular would benefit young firms to spur innovation: reducing the stringency of legislation from the highest to the average level in the OECD, for example, could raise capital flows to patenting firms by around 35%.

Young firms are playing an increasingly important role in patenting: over a sample of sixteen economies, young firms represented 24% of all patenting firms and applied on average for 12% of patents.

The report reveals recent changes in the mix of jobs in Europe. For example, demand for lower-skilled jobs, such as machine operators and clerical support staff, fell by around 7% each in 2011 and 2012, and by around 20% for managers. But job opportunities for the high-skilled continued to rise, by around 13% for technicians and 50% for professionals.

The share of jobs in the service sector continued to rise in the crisis, making up about 74% of all jobs in OECD countries.

Governments should do more to help knowledge-intensive service sector firms thrive and give workers the skills these industries need. Information and technology skills should be emphasised in compulsory education and in training programmes for older workers, says the OECD.

The Scoreboard tracks trends in science, technology and industry to understand how innovation is evolving and how countries are positioning themselves in the global knowledge economy. It includes more than 260 internationally comparable quality indicators and provides a broad range of statistics for other major economies such as Brazil, China, India, and the Russian Federation.

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