The Daily. Thursday, May 23, 2002

The trend to smaller producers in manufacturing: A Canada/U.S. comparison

The trend to smaller producers in manufacturing: A Canada/U.S. comparison, released today, analyzes the importance of small producers in the Canadian manufacturing sector over the last quarter of a century. It examines whether there has been a radical shift in the ability of small firms to compete with large producers that is leading to the decline of large businesses and the growth of smaller businesses.

During the 1970s and 1980s, small Canadian manufacturing plants increased their share of employment, according to the study. But the 1990s saw an end to this trend. The employment share of smaller plants in the manufacturing sector has been relatively stable in the 1990s.

The study found that small Canadian plants increased their share of output, during the 1970s and 1980s, but did so only weakly. And during the 1990s, their share of output in small manufacturing plants began to fall. Together, the evidence on both employment and output suggests that the era of increasing importance of small producers, at least in manufacturing, came to an end in the early 1990s.

The relative labour productivity of small Canadian plants fell during the 1970s and 1980s as their share of output increased at a slower rate than did their employment share. In the 1990s, their relative labour productivity continued to fall. Small plants continued to fall behind large plants either because they were less capital intensive or because they were less efficient. Small plants may have increased their share of employment, but this growth dragged down the growth rate of aggregate labour productivity in the manufacturing sector as a whole.

The study examined whether there is a difference between the importance of small plants in the manufacturing sectors of Canada and the United States. It found that Canada has a larger proportion of employment in small plants than does the United States. But the trend to a higher employment share in smaller plants over the last quarter century has been similar in the two countries.

The study also examined whether there has been a similar trend in the declining relative productivity of smaller manufacturing plants in the two countries. If the relative productivity of Canadian small plants fell more than that of the smaller plants in the United States, this phenomenon might explain the growing gap in Canada/US labour productivity.

According to the paper, both countries have experienced a decline in the productivity of small plants relative to large plants and the magnitude of the decline is about the same in each. The similarities in this area suggest that it is commonalities in the technological environment that are driving the changing relative productivity of small and large plants, rather than country-specific factors, such as unionization or differences in trade intensities.

The research paper The trend to smaller producers in manufacturing: A Canada/U.S. comparison, (11F0027MIE) no. 3, is now available on Statistics Canada's Web site (http://www.statcan.gc.ca). Select products and services, choose research papers (free), then national accounts.

For more information, or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588), Micro-economic Analysis Division.