the net creation of jobs among surveyed firms. In contrast, while the number of firms in the services sector was large, their role in creating jobs was negligible. At the firm level, small and younger surviving (including start-ups) were the most important contributors to job creation in the EU11. In addition, the results demonstrated that firm productivity and the creation of new jobs among the surveyed firms went hand in hand. Moreover, a crucial correlate of employment growth among the EU11 surveyed firms was the business environment. The perceived quality of the business climate was associated not only the firms’ employment growth, but also with their productivity. All these findings were also confirmed for the share of high-growth surveyed firms, which disproportionately accounted for the creation of new jobs in the EU11 economies prior to the crisis.

Construction and manufacturing industries most severely suffered from the economic downturn. The EU11 countries that still heavily relied on these industries faced a hefty decline in their overall number of jobs. The results demonstrated that surveyed firms in the services industries were less vulnerable to the economic downturn. Accordingly, in small service firms, a substantially smaller (proportionate) number of employees was lost among the surveyed firms than in the rest of the economy, and especially, in the traditional sectors. The empirical results also suggest that (total factor) productivity correlated positively with employment growth among surveyed firms. Business restrictions also adversely affected the creation of jobs in the post-crisis period.

Overall, the empirical results confirm that, in qualitative terms, the analyzed firm characteristics (such as size, age, TFP, sectoral affiliation) affect job creation both during recessions and economic recoveries. They indicate that the more productive firms tend to be less vulnerable to economic downturns. Accordingly, any type of activities that increase productivity can be expected to reduce the overall exposure of the EU11 economies to recessions and, therefore, should allow firms to compete more successfully with international competitors.

In addition, the empirical results point to the key role of improving the quality of the overall business environment for job creation in EU11. The empirical evidence suggests that improving the business climate, strengthening labor and regulatory practices, modernizing institutions, and deepening access to financial advances job creation. Put broadly, improving the institutions for doing business will lead to leveling the playing field for all firms, boost overall productivity and, thus, contribute to the creation of new jobs. Also, given the importance of the business environment for FDI inflows, reducing business restrictions would also increase the EU11 economies’ medium- and long-run productivity and overall competitiveness and indirectly contribute to job creation. As highlighted in World Bank (2013, forthcoming), a sound business environment, however, seems to be a necessary but not sufficient condition for sustained job creation.<sup>28</sup>

> 28 See World Bank (2013) for specific policy recommendations.

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