Companies sometimes tend to devalue knowledge from other educational fields. For example, humanistic studies have been under attack a couple of times. I think it’s a shame and a recent publication by me and Kristof van Criekingen, expert on R&D and innovation at Belspo, the Belgian Federal Science Policy Office, shows benefits from other fields for job creation through young firms’ fast growth. In our open access publication: Fast as a gazelle – young firms gaining from educational diversity, we look at the relation between employees’ high education and the likelihood that the young firm grows very fast and is, hence, so called gazelle. We looked at these fast-growing firms because they are the ones creating the most of new jobs – not just jobs that replace an old job in the company.
Some of the reasons, why I think diversity matters, are related to networks (social capital) and innovation. Employees with different high education have different networks and, hence, know different persons with different knowledge. Networks can play a big role in many places, such as in recruitment, finances and the company’s reputation. Diverse education can also help the company to manage the fast growth speed as the company has a wider pool of knowledge to draw from. Last but not least, diverse education has been shown to support innovation in previous research (Østergaard, Timmermans, and Kristinsson, 2011). In our case, the relationship between fast growth and education is of a U-shape meaning that a group of engineers will benefit less from, say, an economist than a group that has engineers, humanists and, say, designers. This relationship shape might originate from integration costs: a diverse group is probably used to communicate with interdisciplinary terms.
We further included other factors predicting fast growth, one of which is so called intangible capital. While education approximates the knowledge capital in employee, intangible capital is an approximate of the knowledge capital of the company. Intangible capital is calculated from employees’ salaries that work in knowledge producing occupations. Thus, we are assuming that the production of these employees reflects their salaries and that a certain fraction of their working time is of “investment nature” meaning that the product is something that the company can reuse, such as a marketing brand. We have three types of intangible capital: Research and development, organizational (includes marketing and management) and ICT capital. All of these were positive and significant predictors for fast growth.
To arrive at these results, we consulted Danish register data covering 2002-2016. The beauty of the data is that it covers all firms and all employees in Denmark. We looked at growth in three-year intervals to exclude non-lasting fast growth. To ensure focus on jobs, we looked at growth in the number of employees and not sales. We checked if educational diversity affects the fast growth differently, in cases with more employees with master’s degrees. We only calculated diversity for employees with bachelor’s degrees or higher in order to separate the effect of education field and education level.
Overall, fast growth research is progressing at a high speed. Many are interested in the ability to predict the fastest growing companies. Investors want to invest in the best and governments want to have more of the best in order to get new jobs and higher GDP growth. There are many ways to define the fastest growing companies. Some look at yearly sales. Challenge with this is, however, the fluctuation of sales. A challenge with looking at one year only is that the company might be “too fast to live”. Many companies grow fast and disappear fast.
Hence, we are looking at fast growth during 3 subsequent years and the number of employees. Employment fluctuates less than sales and is a future oriented indicator: one will not employ more personnel, if not expecting strong sales. Of course, the focus on employment has one drawback: different industries need different levels of personnel. We control this in the estimation to separate the effect of industry characteristics.
The second challenge is how to define who is among the fastest growing. It’s possible to label 5 or 10% of fastest growing companies as the fastest. Yet, as a result, different growth speeds per year produce the fastest growing. Hence, comparison between years is a bit challenging. If one wants to compare companies within a year, this can be a nice tool. We are using in this article Eurostat-OECD (2008, p. 63) definition where a company needs annual growth of 20%, and is younger than 5 years old, to be labelled as a fast-growing company, a gazelle.
“But is it only young firms that benefit from educational diversity?”, you may ask. The answer is no. In my previous research, I looked at firms of all ages and the likelihood of fast growth in Denmark from 2005 to 2013.
How is your circle of friends and colleagues formed: what have they studied?
PhD, University teacher in Economics, University of Vaasa
Fulbright Grantee, currently on a research visit to the University of Virginia, USA.
1 kommentti artikkeliin “Young company as fast as a gazelle”
An insightful article that emphasizes the benefits of educational diversity in young firms for job creation and fast growth.
Educational diversity helps companies manage fast growth speed and supports innovation, as employees with different high education have different networks and know different persons with different knowledge. The study used Danish register data covering 2002-2016 and found that intangible capital and diverse education were positive and significant predictors for fast growth. Overall, this article shows the importance of valuing knowledge from different educational fields and the potential benefits it can bring to companies.