7.8 percentage points. Hence, in the EU11 economies, small surviving firms tended to rapidly adjust their size to favorable market conditions.

**At the same time, start-ups and (very) young surviving firms grew at the fastest pace.** In quantitative terms, one percentage point younger firms exhibited employment growth rates that are 4.6 to 7.7 percentage points higher than the rest of the surveyed firms. This finding holds true for both - initially small and large firms. However, it is important to note that our data do not allow for ascertaining whether the size or age of the firm is the prevailing characteristic of fast-growing firms (see Box 2). Recent findings in the literature with more adequate data for the USA (e.g., Haltiwanger et al. 2013) conclude that it is age rather than firm size that matters so that the job creation in surviving start-ups and young firms outperformed the employment growth rates of older firms.<sup>14</sup>

**The employment growth performance of small-old surviving firms was substantially worse.** The positive parameter estimates for the interaction effect of firm size and firm age indicates that the speed of adjustment was slower for small-old firms. Small firms contributed to job creation when they were young. In later periods, the number of their employees stabilized, indicating that they were less willing to increase their scale of production in terms of hiring new workers.

**While notable improvements in the EU11 business and regulatory environment were made prior to the crisis, an inhibitive business environment affected negatively the efficient allocation of labor across industries.** In industries with heavy business restrictions and regulations, employment growth prior to the crisis was lower (Table 2). In quantitative terms, a one unit decrease in the overall level of business barriers, or put differently, a unit improvement in firms’ perception of their business environment (for example from major to moderate obstacle to business) was associated positively with job creation by approximately 1.1 percentage points (Table 2, see column 2). Had the EU11 completely removed all perceived business restrictions, these surveyed firms would have increased their average annual employment growth by as much as 4.4 percentage points.

**Removing obstacles to access to financial resources, simplifying tax systems and fighting corruption positively correlate with job creation by already established firms.** The econometric analysis reveals that, a one unit decrease in the perceived difficulties to obtain sufficient financial resources correlated positively (by 2.5 percentage points, on average) with job creation among the EU11 surveyed firms (Table 2, see column 4).<sup>15</sup> In a similar vein, restrictive business taxation rules correlate with substantial job creation. In industries with complex tax systems, employment growth rates were reduced by 1.9 percentage points (Table 2, column 7). Corruption reduced job creation among the surveyed firms (Table 2, see column 6). Interestingly, however, institutional regulations (such as customs and trade regulations and business licensing proceedings) were estimated to have increased firm's average job creation by 1.8 percentage points (Table 2, see

> 14 However, Haltiwanger et al. 2013 and Huber et al. 2012 also document that young firms exhibit an increased exit hazard. Accordingly, an overall assessment of young firms’ contribution to overall job creation would require census data that also contain information on market entry and exit. The data used in the analysis here do not account for firm exit.

> 15 This finding is in line with the previous work on the impact of institutional barriers on firm growth which identified financial constraints as the most crucial obstacle to growth (see, e.g., Ayyagari et al. 2008).

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