How good are small firms at predicting employment?

This paper utilises some data from an interview survey of very small firms in the North of England to examine the relationship between actual and forecast employment in small firms over a twelve month period. The paper first provides some summary statistics on actual and forecast employment for the survey firms over the reference period. It then looks at how successful the firms are in their short term forecasts, and finds that there is systematic over-estimation. The causes of the systematic forecast error are investigated. It is suggested, tentatively, that the firms may in some way be incorrectly interpreting the information embodied in their own employment figures when making their forecasts. The paper concludes with a brief review of the results and possible policy implications. Avenues for future work are also proposed.