Who actually creates jobs, and why Nova Scotia’s policies are aimed at the wrong target
By Bernard F. Miller KC, ICD.D
There is a familiar sequence in Nova Scotia economic development that persists. A large employer signals that it is considering a location or relocation decision. Officials assemble a package. A payroll rebate is announced, denominated in jobs promised over a defined period. The ribbon is cut, or the photograph is taken in front of a building that already exists, or one that soon will. The number of jobs is ambitious, the announcement is real, and the political need of the moment is satisfied.
What is missing is any serious relationship between this sequence and the way employment growth actually happens in a modern economy.
The evidence on that question has been settled for more than a decade. It points somewhere other than where our policies and our politicians are pointed. The firms that generate net employment growth are not, in the main, large firms nor resource firms. Neither, despite the persistence of the claim, are small businesses the “backbone of the economy”. Employment growth comes from new firms. Age is actually the variable that matters most. Nova Scotia’s current economic development policy is almost entirely indifferent to it.
What the research shows
The foundational work is by John Haltiwanger of the University of Maryland, together with Ron Jarmin and Javier Miranda of the United States Census Bureau. Using the Census Bureau’s Business Dynamics Statistics and Longitudinal Business Database – which capture the entire population of American employer firms rather than a sample – they tested the long-standing proposition that small businesses create most new jobs. Their central finding was that once firm age is controlled for, there is no systematic relationship between firm size and employment growth. Business startups and young businesses play the decisive role in job creation.
The belief that small firms create job growth, evident in earlier studies, was largely a statistical artifact. At inception, firms are almost always born “small” using conventional definitions of what constitutes a small business. Those that succeed grow quickly and soon stop being small. Often reaching the standard of a medium or large business within five years. Those that fail disappear from the data. Measure size without measuring age, and you attribute to smallness as a cause what properly belongs to age, specifically youth.
The same dynamic is true in Canada. Statistics Canada replicated the result using the Longitudinal Employment Analysis Program, which covers all employer firms in Canada. The average annual rate of job growth does not differ significantly across firms of different sizes once the age of the firm is considered. The Organisation for Economic Co-operation and Development found the same pattern across eighteen member countries. Young firms accounted for seventeen percent of employment but created forty-two percent of jobs.
Work cited by Innovation, Science and Economic Development Canada finds that the combined effect of entrants and exits accounts for roughly half of the overall net employment growth rate in the economy. Half of the net growth comes from the appearance and disappearance of firms. The other half comes from every expansion and contraction decision taken by every incumbent business in the country combined.
Most of the gross churn in employment- the hiring and separations that happen in any given year – is driven by incumbents expanding and contracting. Incumbents matter enormously to the overall level of employment. But the question policymakers should be asking is not who employs the most people today. It is where the next increment of employment will come from. On that question, the answer is new firms, typically in their first five years.
With its many post-secondary institutions and organizations that promote and support start-up growth, such as the Centre for Entrepreneurship Education and Development, Nova Scotia is well positioned for employment growth from young companies.
The MIT refinement: quality, not quantity
If the argument stopped there, job growth would invite a policy of maximising business registrations, which would be a mistake. The most important recent contribution to this literature, and the one more directly useful to a jurisdiction like ours, comes from Scott Stern at the MIT Sloan School of Management and Jorge Guzman (now at Columbia) through the Startup Cartography Project. In fact, this work directly influenced policy in Nova Scotia between 2016 and 2021, as explained below.
The Stern/Guzman innovation was to separate two things that had previously been conflated. Entrepreneurial quantity is the rate of startup activity. Entrepreneurial quality is the probability that a startup achieves a growth outcome measured in revenue and employees. Using business registration records and predictive analytics, they estimate the growth potential of a firm at or near the moment of its founding, from observable characteristics such as how the firm is named, whether it is incorporated in a form suited to outside investment, and whether it has filed for intellectual property protection.
The finding that should reorganise economic development practice is this. Entrepreneurial quality correlates with regional economic growth. Entrepreneurial quantity does not.
A region can generate a great many new business registrations and grow slowly. What distinguishes regions that convert entrepreneurship into shared prosperity is the presence of firms founded with the ambition, the structure and the capital to grow. Creative Destruction Lab affiliated with Dalhousie University, is a good example of this work in action in Nova Scotia.
The Canadian data confirm the point. Analysis by Innovation, Science and Economic Development Canada tracked surviving firm entrants by their size at birth. Entrants that began with one to four employees and survived added, on average, 1.2 jobs over their lifetime. Entrants that began with twenty to forty-nine or fifty to ninety-nine employees, on average, doubled in size within five years and continued to grow.
If a business starts very small, its prospects of ever becoming large are limited. The scale and seriousness of a firm at founding predict its trajectory. This was the key finding of Stern and Guzman. That is a statement about the culture and nature of the ecosystem as well as access to start-up capital. It’s about the ambition of the founders, and about the institutional environment that shapes both at the moment of formation.
This is the same insight that underlies the MIT Regional Entrepreneurship Acceleration Program, of which Scott Stern is faculty director, and its insistence that innovation capacity (I-Cap) and entrepreneurial capacity (E-Cap) are distinct assets that a region must develop together. Policy needs to promote I-Cap and E-Cap.
A place can have excellent research institutions and almost no capacity to commercialise what they produce. Until the Ivany Report of 2014, Nova Scotia was such a place, as the Ivany commissioners showed.
What Nova Scotia already knows
Now or Never: An Urgent Call to Action for Nova Scotians, the 2014 report of the One Nova Scotia Commission chaired by Ray Ivany, then president of Acadia University, introduced clear and direct insights about Nova Scotia in the decades leading up to the Report. The Commissioners made the demographic and economic arithmetic impossible to set aside, and in doing so, they created political space for a different kind of attempt.
In 2016 Nova Scotia became the first Canadian jurisdiction accepted into the MIT Regional Entrepreneurship Acceleration Program. The team was championed by Richard Florizone, then president of Dalhousie University and himself a graduate of MIT, and was assembled from the five stakeholder groups the REAP framework requires: university, government, large corporations, risk capital and entrepreneurs. Its members included the federal deputy minister responsible for ISED, the provincial deputy minister of business, leaders from Emera and Clearwater, a general partner from Build Ventures—a Venture Capital firm, and motivated founders who had built and sold companies here. The author of this essay was a member of that team.
The province worked through the framework across the 2016 to 2018 cohort, identified its comparative advantage—the all-pervading presence of the Sea–and produced an area of focus, a “must-win battle”. Following the MIT experience, a successor organisation, ONSIDE, the Organization for Nova Scotia Innovation-Driven Entrepreneurship, was established to carry the work forward. Nova Scotia was invited back in 2021 as the site of the first MIT REAP Focus programme for smaller communities and functional economic regions within the province.
Stern and his colleagues took a particular interest in Nova Scotia and stayed engaged well beyond the formal programme, and what emerged was not just a plan but a number of key actions. Incorporation fees were lowered. A new seed-stage Venture Capital fund was formed, Innovation Tax Credits were enacted, and Volta in Halifax was scaled into the anchor of a genuine innovation district. The Centre for Ocean Ventures and Entrepreneurship opened across the harbour in Dartmouth as a working facility where ocean technology firms could test at commercial scale. Ignite Labs opened at the Nova Scotia Community College campus in Yarmouth in 2018, and later in Stellarton, extending the model beyond Halifax. The Verschuren Centre in Sydney was repositioned as an independent open-access facility capable of taking clean technology companies from laboratory bench to production volume. Canada’s Ocean Supercluster was established in 2018 with its headquarters in Halifax. Innovation Driven Entrepreneurship (IDE) was seen as a key pillar of the government’s economic development policy.
Each of these is recognisably an application of the same MIT REAP policy and program initiative framework. None of them is an employer seeking a payroll rebate. None was secured by outbidding another jurisdiction. Each was built to increase the rate at which the province could enable and accelerate firms capable of growing.
Between 2017 and 2021, the province tried a genuinely different approach to job creation, organised around the formation and growth of innovation-driven firms rather than the attraction of established ones.
The outcomes arrived. In December 2021 Nova Scotia’s population passed one million for the first time in its history. The third quarter of that year produced the fastest quarterly growth in records reaching back to 1971, and Halifax added more residents between July 2020 and July 2021 than in any year since its founding.
In the same year, the province posted real GDP growth of 6.2 percent, second among the provinces only to Prince Edward Island. After decades in which the defining economic fact about Nova Scotia was that its young people left, both of the numbers most often used to describe the province’s decline had reversed and for the first time in a century the 18-34 cohort was not only growing but exploding.
Two qualifications are necessary. The first is that no single year can be attributed to a single change in policy, and the onset of the coronavirus in late 2019 changed many things. 2021 was a COVID reopening year following the successful “Atlantic Bubble”, and Statistics Canada attributes the Nova Scotia and Prince Edward Island results mostly to household spending driven by migration, some of it a pandemic-era preference for lower-cost places from which to work and during COVID to work remotely, and some of it driven by rapid in-migration during COVID by quality-of-life choices. The circumstances obscure the exact causes of such unprecedented growth in Nova Scotia.
The second qualification is more fundamental, and my colleague Peter Nicholson has set it out on this site in Innovation Diffusion and the Growth Prospects of the Maritime Provinces. Nova Scotia’s GDP per capita converged toward the Canadian average from 65 percent in 1960 to roughly 78 percent, but then the convergence flattened. Growth driven by more people spending more money raises the level of output. It does not close the gap in output per person. What closes that gap is the rate at which a region absorbs, adapts and commercialises innovation from wherever it originates. This is what happened.
That is precisely what the policy and institutions built between 2016 and 2021 were for. The population surge supplied both demand and labour while new companies were being formed. The ecosystem was the machinery for converting both into firms driven by innovation capacity, productivity and durable convergence rather than a one-time bulge in household consumption.
For a time, the approach worked on the terms available to judge it. What it did not do was survive a change of government. From 2021, the emphasis of economic development policy reverted to instruments and habits more reflective of Nova Scotia’s past practices. The institutional memory of the alternative IDE approach thinned quickly. Path dependence took hold. Nova Scotia reverted to investment attraction as its principal approach more recently, with the re-emergent hope of natural resources extraction and export as the key economic objective.
That reversion is the phenomenon most in need of explanation, because nothing had failed about an approach focused on innovation-driven entrepreneurship.
Why the wrong policies persist
If the evidence is this clear, the obvious question is why economic development practice remains organised around attracting large and established firms with publicly funded inducements and incentives.
Mancur Olson gave the general answer in his work on distributional coalitions. Established firms are organised. They have government relations functions, industry associations, existing relationships with officials, and a concentrated interest in policies that will benefit them.
New firms have none of this. They do not yet exist as a political constituency. By the time any individual firm is large enough to advocate for itself, it has become an incumbent with incumbent interests. The political economy of economic development systematically over-represents the firms that matter least to future employment growth.
There are clear political dynamics at play. Small firms grow by hitting many singles and doubles over an intense start-up phase. But a big payroll rebate announcement with the potential for hundreds of jobs is often perceived as a political home run.
Edmund Phelps of Columbia University made the deeper argument in Mass Flourishing. What he calls corporatism, the settlement in which large organisations, organised labour and the state negotiate outcomes among themselves, does not merely misallocate resources; it suppresses the grassroots dynamism from which innovation and growth originate. The suppression is not a side effect. It is what the arrangement is for, because stability and predictable growth are what its participants are seeking.
Nova Scotia has its own history on this, set out at length in an earlier essay on this site, The Perils of Forced Growth. From the 1960s, Nova Scotia pursued what it called industrialization by invitation. A Crown-financed vehicle, Industrial Estates Limited, offered capital, buildings and tax concessions to induce large manufacturers to locate here, on the premise that scale, once imported, would substitute for the slow accumulation of local capability. Clairtone, drawn from Ontario with taxpayer inducements too generous to refuse, was bankrupt within five years, having cost the province twenty-six million dollars against three million dollars in assets. A proposed heavy water plant at Glace Bay cost a further twenty million dollars and produced negligible heavy water. Volvo operated an assembly plant for thirty-three years without ever employing more than two hundred people directly. Michelin succeeded, and its success became the problem. For a generation afterward, economic development in Nova Scotia meant trying to find another Michelin. Asearch that produced a long list of firms, from DynaTek to the DSME facility at Trenton, that failed within a few years of receiving public funds. The projects failed considerably more often than they succeeded. The hope persisted.
That instinct is still operating. The reflex to look for large projects, or a large employer, is not primarily a judgment about economics. It is a judgment about political time. A large announcement is intended to have impact within an electoral cycle. The formation of a hundred serious new good jobs in high-growth firms over a decade does not.
This is why the shift back to the old ways in 2021 was so easy. An approach organised around firm formation produces its returns on a horizon longer than the government that adopts it, which means it is always available to be abandoned at no immediate political cost. It does not have to fail. It only has to be inconvenient to explain.
Where Nova Scotia stands
In 2014, the starting point was poor. The Conference Board of Canada’s assessment of provincial enterprise entry rates over the decade to 2014 placed Nova Scotia at 11.6 percent, a C grade, near the bottom of the provincial distribution. That figure sits alongside a more telling one from the same period. At that time, when the Canadian Federation of Independent Business asked business owners whether they would recommend starting a business in their province, thirty-six percent of Nova Scotia respondents said they would. In Saskatchewan, the figure was eighty-eight percent. This was the state of the province the Ivany Commission was describing.
Against this, consider what our principal programs actually do. The payroll rebate, the flagship tool of Nova Scotia Business Inc. and its successor arrangements, is performance-based and in that respect well designed. It pays only on payroll actually created. But it is available in practice only to firms that can credibly commit to creating substantial payroll over a multi-year horizon, which is to say established firms of scale (the fact that many of them miss targets is often lost after the initial announcement). A firm that does not yet exist cannot make that commitment. The instrument is not hostile to new firms. It is simply built on assumptions that by design exclude them.
What alignment would require
Aligning policy with the evidence does not mean abandoning existing employers or refusing to engage with large investments. It means correcting an approach that is presently weighted almost entirely to one side: investment attraction. Four changes would matter most.
Measure what predicts growth. Nova Scotia should adopt quality-adjusted measures of entrepreneurship rather than counting registrations or announced jobs. The Startup Cartography methodology is public and reproducible from provincial registry data. A jurisdiction that cannot distinguish between a thousand sole proprietorships and thirty firms founded with growth intent is flying without instruments.
Address the founding-scale problem directly. The evidence that firms born small stay small is the single most actionable finding in the research. It implies that the binding constraint is capital and capability at formation, not the number of people willing to try. Programmes that help a firm start at a serious scale, with ambitions for revenue and employment growth, will outperform programmes that help a large number of firms start at a trivial one.
Shift the burden of proof in incentive design. Any instrument offered to an established firm should be tested against the counterfactual of deploying the same public capital toward firm formation. That test is currently never applied, because the two decisions are made on different timetables against different metrics. While involved in public service, the author worked hard to change this, but the status quo has an iron grip.
Build start-up capital pools that are not annual appropriations. This is where the structural question becomes unavoidable. New firms in Nova Scotia are capital-constrained, and the available responses are either private capital, which is thin here and concentrated elsewhere, or government programmes, which come attached to the appropriations cycle and the political priorities that govern it. The difficulty with the second route is not dependency in any pejorative sense. It is that reliance on appropriations gives the state a controlling interest in what Nova Scotia-based entrepreneurs and their communities are permitted to attempt.
A Third Way: Community Interest Companies
There is a third route, and it turns on a distinction Nova Scotia’s own political economy has never made cleanly.
Economic development is treated, almost by reflex, as though it were synonymous with job creation. It is worth being precise about why this is not quite right. A private, for-profit enterprise does not exist to create jobs. Its objective, entirely properly, is return on invested capital. Job creation, tax revenue and public wealth are consequences of that pursuit when it succeeds, not its purpose. The payroll rebate model works, when it works, by paying a firm to treat job creation as though it were an objective the firm shares with government. It rarely is, and the mismatch is one reason the model performs as poorly as it does.
Economic activity in fact serves several distinct public purposes at once, of which employment is only one. It generates the tax base that funds government, including the transfers that reduce regional disparity. It builds the private capital that finances further private investment. What it does not routinely do, on its own, is rebuild community. A firm optimised for shareholder return has no mandate to hold capital for a place, to reinvest locally rather than upstream to head office, or to survive a change in ownership with its local purpose intact. That capacity has to be designed in. Left out of the usual account of economic development, it is nonetheless the piece most responsible for whether growth, once achieved, is felt as belonging to the people who produced or enabled it.
Raghuram Rajan of the University of Chicago Booth School of Business, formerly Governor of the Reserve Bank of India, gives this omission a name in The Third Pillar. A functioning society rests on three supports rather than two. The state and the market are the two we habitually discuss. The third is community: the layer of association, obligation and local institution that sits between the individual and everything larger than the individual. His thesis is that this third pillar has been progressively crushed between the other two, and that much of what we now call economic and political dysfunction follows from its collapse rather than from any failure of states or markets as such.
This is the same terrain Phelps occupies from a different direction, and the terrain The Perils of Forced Growth describes from a third. Where Phelps sees corporatism suppressing grassroots dynamism, and where the forced-growth era shows a province substituting imported scale for local capability, Rajan sees the hollowing of the intermediate layer between citizen and state. Nova Scotia’s economic history is, in large part, a history of that middle being hollowed out. Communities that once held their own capital, made their own decisions about it and carried their own institutions were progressively converted into recipients: of transfers, of programmes, of plants sited by someone else. The megaproject and the payroll rebate are not merely inefficient, as the Clairtone and Volvo experiences showed. They are instruments that treat a community as a location for job creation rather than as an agent designing the future it wants.
The 2016 to 2021 period offers the alternative model, and it is the same model this essay has argued for on employment grounds. Rather than government rewarding footloose companies from other places for job creation in Nova Scotia, the province should reallocate those resources to entrepreneurial and innovation capacity, including for Community Interest Companies.
That reorientation, from funding firms to relocate to building the systems that produce firms, is exactly the shift community restoration also requires. A government that has already learned how to build capacity rather than purchase jobs is a government positioned to apply the same discipline to rebuilding community and social capital.
Here the two arguments in this essay meet. Employment growth comes overwhelmingly from new firms. Community restoration requires institutions that a community actually owns. A Community Interest Company, available in Nova Scotia since 2016, is by definition a new company. The instrument that could rebuild the third pillar here is the same class of instrument the employment evidence tells us to favour.
A CIC operates as any other start-up does, with one structural difference: an asset lock and a cap on dividends. What makes the CIC suitable for this purpose is not that this makes it a lesser form of enterprise. It is that the asset lock and the dividend cap function as anti-capture technology, and that they preserve decision-making within the community the company serves.
Recall Olson’s problem: any pool of value attracts organised interests seeking to redirect it, and the government appropriations process is one such interest among others. A CIC’s constraints mean the capital cannot be extracted by shareholders, cannot be quietly reallocated by a future government, and cannot be captured by whoever happens to be best organised at the time. The company exists for a community purpose even though it may carry investment capital and generate a profit.
The evidence in this essay also imposes a discipline on the idea, and it is a demanding one. Community enterprise in Canada has generally been designed for service delivery rather than growth: small, local, worthy and, often, permanently small. The finding about founding scale applies to community interest companies exactly as it applies to any other new firm. A CIC incorporated at very small scale to operate a local shop, with no capital behind it and no market beyond its own community, will add its 1.2 jobs and stop.
If these companies are to create employment as well as restore agency, they must be built from the outset as growth firms: capitalised seriously, governed by people who expect to compete, and pointed at markets larger than the community that owns them. Community ownership is a question of who holds the equity and in whose interest it is being advanced, not a licence to stay small.
Nova Scotia has done this before. The Antigonish Movement, initiated by Moses Coady and Jimmy Tompkins out of St Francis Xavier University in the 1920s and 1930s, created credit unions, co-operatives and community-held enterprises across the province, at scale, in conditions considerably worse than present ones. It was not charity, and it was not a programme. It was communities capitalising themselves and then competing. The legal form now available to us is better than anything Coady had to work with.
There is a constitutional dimension as well. Section 36(1) of the Constitution Act, 1982 commits Parliament and the provincial legislatures to promoting equal opportunities for the well-being of Canadians and to furthering economic development to reduce disparity in opportunities. That is ordinarily read as a warrant for transfers. A capacity-building model of the kind REAP demonstrated, extended through community-controlled enterprise, reads at least as naturally as a warrant for building the capacity of communities to generate opportunity on their own account, and arguably answers the constitutional ambition more directly than a transfer does, since it builds the thing section 36(1) says should exist rather than compensating for its absence.
Ignite Labs and the Verschuren Centre in Sydney demonstrate that firm formation outside Halifax is achievable once the institutions exist. Community-held capital, in a form that cannot be appropriated, is what would allow those places to act rather than wait to be selected. Jobs and community are not competing objectives to be traded against one another.
The abundance case
The argument here is not that Nova Scotia has been unlucky, or that others have taken what was ours. It is that we have been pointing a serious set of policies and program initiatives at the wrong target, and that the target is knowable, measurable and reachable.
The firms that will employ Nova Scotians in 2045 do not exist yet. Many could be founded by people who currently live here or are in our community colleges or universities as students about to make serious life choices. Whether they are founded here, and whether they are founded at a scale that allows them to grow, depends on decisions we are making now about where public capital goes and the values we apply to economic development, what we measure, and whether communities are permitted to hold capital of their own.
A province that rebuilds its entrepreneurial and innovation capacity to form companies is also rebuilding the layer of institutions through which people act together.
That is a more demanding proposition than providing a cheque to an incumbent firm in exchange for a photo opportunity or a ribbon-cutting. It is also much better for society in the long run.
Sources
John Haltiwanger, Ron S. Jarmin and Javier Miranda, “Who Creates Jobs? Small vs. Large vs. Young,” Review of Economics and Statistics 95 (2013), 347-361.
Statistics Canada, Firm Dynamics: Employment Growth Rates of Small Versus Large Firms in Canada (catalogue 11-622-M) and Business Entry and Exit Rates in Canada: A 30-year Perspective (catalogue 11-626-X).
Chiara Criscuolo, Peter Gal and Carlo Menon, The Dynamics of Employment Growth: New Evidence from 18 Countries, OECD Science, Technology and Industry Policy Papers No. 14 (2014).
Innovation, Science and Economic Development Canada, Canadian New Firms: Birth and Survival Rates over the Period 2002-2014 (2018) and The Contribution to Canadian Net Employment Change by High-Growth Firms (2017).
Jorge Guzman and Scott Stern, “The State of American Entrepreneurship,” American Economic Journal: Economic Policy 12:4 (2020), 212-243; and R.J. Andrews, Catherine Fazio, Jorge Guzman, Yupeng Liu and Scott Stern, “The Startup Cartography Project,” Research Policy 51:9 (2022).
Canadian Federation of Independent Business, Canada’s Entrepreneurial Drought, Part 1: The Shrinking Business Landscape (2026).
One Nova Scotia Commission, Now or Never: An Urgent Call to Action for Nova Scotians (2014).
MIT Regional Entrepreneurship Acceleration Program, Team Nova Scotia Executive Summary, Cohort 4 (2016-2018).
Statistics Canada, Provincial and Territorial Economic Accounts, 2021 (released 8 November 2022); and quarterly demographic estimates, 2021.
Peter Nicholson, Innovation Diffusion and the Growth Prospects of the Maritime Provinces, PolicyWonks.ca (14 March 2025).
Bernie Miller, The Perils of Forced Growth: Lessons for Canada from Nova Scotia’s Experience, PolicyWonks.ca (24 August 2023).
Edmund Phelps, Mass Flourishing (2013); Mancur Olson, The Rise and Decline of Nations (1982); Philip Mathias, Forced Growth (1971).
Raghuram Rajan, The Third Pillar: How Markets and the State Leave the Community Behind (2019).
Moses Coady, Masters of Their Own Destiny (1939).
The views expressed in this essay are the author’s own independent views and do not represent the position of any organization with which he is or has been affiliated.
