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Foreign companies exaggerated job targets

23.11.2004


BIG foreign companies that established UK business plants over a 14-year period exaggerated their job creation claims, a new study suggests.



Companies deliberately overstated job claims to attract business support and advice, conclude researchers from the University of Newcastle Upon Tyne Business School. The team say ambitious job creation targets can be advantageous to inward investment agencies, like regional development agencies (RDAs), and warn that such claims should be treated with “a high degree of scepticism”.

The study, published in the Oxford Bulletin of Economics and Statistics, reveals that many firms which invested in new plants in North East England – a UK boom area for foreign inward investment in the 1980s and 1990s – fell short of their job creation targets. It also reports that firms that received help for their business plants from the main investment agency at the time, Invest UK, were less likely to achieve their employment goals.


However, further research is needed to show whether a similar situation has perpetuated into the present day. This is the first detailed study of this kind of data, as the job claims of the inward investors and agencies are rarely tested, say the research team.

Newcastle University researcher, Dr Colin Wren, said: “Rather than some other explanation it seems the number of jobs may have been deliberately over-estimated. Although we only looked at the North East we suspect the findings apply to other regions and countries which benefited from inward investment, such as North West England, Wales and Scotland.

Co-researcher, Dr Jonathan Jones, said the findings implied a misallocation of public resources, adding: “Larger job scales imply better treatment from inward investment agencies, in terms of help with land, premises and other forms of assistance. “Economic development agencies benefit from claims about the number of jobs provided, especially in larger ‘flagship’ projects, which may not only bring them prestige, but potentially better grant-in-aid funding.”

The study analysed statistics relating to 265 new foreign-owned plants, which undertook 416 projects in North East England from 1985 until 1998. These mostly originated in Western Europe, the Far East and North America.

Overall, the researchers found the new plants promised a total of 48,825 jobs but total employment within the plants stood at 34,164 in 1999, a shortfall of over one-third at 15,000 jobs. Over 9,000 jobs promised were in the 50 plants that closed before 1998. Looking more closely, the team discovered that while smaller plants achieved their employment targets, the larger plants fell someway short, suggesting either the job target was not met or that jobs were lost by the end of the analysis period.

To elaborate, a large plant promising 250 jobs had only between half and three-quarters of these in place in 1999, while a plant promising 1,000 jobs had around half these jobs in place by that time.

Plants that received special financial assistance were more likely to achieve their employment targets but those involved with Invest UK were less likely to reach them. For example, on average, a plant promising around 50 jobs had more than this number in place if it received financial assistance but statistics showed it was be likely to achieve two-thirds of this target if involved with Invest UK.

Dr Colin Wren | alfa
Further information:
http://www.ncl.ac.uk

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