4.5 Threshold for inclusion of a firm in the database
Perhaps the most serious problem for international comparisons of firm demography is differences in the threshold for inclusion of a firm in the database. Most countries apply some sort of size threshold (in terms of either earnings or employment) whereby firms below that threshold are not included in the statistics.
The threshold criteria for the New Zealand BDS database have been outlined above. The key criterion for the BDS is GST turnover – in most cases, firms with annual GST sales or expenses above $30,000 will be included in the database, while those with turnover below this level will normally be excluded (although they may still be included if they meet one of the other criteria). This means that even very small firms with zero employees can be included in the New Zealand BDS, provided they have a turnover above $30,000 per year.
In the OECD firm-level project, most of the countries apply a threshold criterion based on firm size: firms must have at least one employee (in addition to any working proprietor/s) to be included in the database. This means that very small firms with zero employees are normally excluded from the statistics. However, to our knowledge most countries in the OECD project (with the exception of France) do not apply a turnover criterion, provided firms have at least one employee.
In the Eurostat data the only criterion that must be met is that a firm must have some positive turnover. Provided turnover is greater than zero, a firm will normally be included in the database regardless of size. The Eurostat therefore has the most liberal criteria for inclusion of firms out of the three key data sources used in this paper.
4.6 Definition of firm entry and exit
Another issue affecting international comparability of firm dynamics indicators is the definition of firm entry and exit. In both the New Zealand BDS and the OECD firm-level project data, it is not possible to distinguish between entries and exits that result from the “true” creation or destruction of a firm, and entries/exits that result from other demographic events like mergers and acquisitions (for example, if a firm is sold to a new owner, this will normally be measured as the “exit” of one firm and the “entry” of another).[2] To the extent that the frequency of mergers and acquisitions differs across countries, this may affect the comparability of results.
In contrast, the Eurostat database has largely been cleaned of “false” entries and exits (Brandt, 2004). This means that measures of firm entry and exit are likely to be more accurate in the Eurostat data than in either the New Zealand BDS or the OECD firm-level project data. However, the Eurostat measures of entry and exit they will not be comparable with other databases that have not been cleaned in this way.
Notes
- [2]Although it is not currently possible to clean New Zealand’s business demography data of false entry and exit, it should be noted that the development of the Linked Employer Employee Database (LEED) by Statistics NZ should soon make this feasible.
