Job creation by company size class: Concentration and persistence
of job gains and losses in Canadian companies
by Richard Dupuy and Garnett Picot
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 093
The statistical observation that small firms have created the majority
of new jobs during the 1980s has had a tremendous influence on public
policy. Governments have looked to the small firm sector for employment
growth, and have promoted policies to augment this expansion. However,
recent research in the US suggests that net job creation in the small
firm sector may have been overestimated, relative to that in large firms.
The first part of this paper addresses various measurement issues raised
in the recent research, and uses a very unique Canadian longitudinal
data set that encompasses all companies in the Canadian economy to reassess
the issue of job creation by firm size. We conclude that over the 1978-92
period, for both the entire Canadian economy and the manufacturing sector,
the growth rate of net and gross employment decreases monotonically
as the size of firm increases, no matter which method of sizing firms
is used. Measurement does matter, however, as the magnitude of the difference
in the growth rates of small and large firms is very sensitive to the
measurement approaches used.
Part one of the paper also produces results for various industrial
sectors, and examines employment growth inexisting small and large firms
(i.e., excluding births). It is found that employment growth in the
population of existing small and large firms is very similar. Finally,
attempts are made to introduce a job quality aspect to the numbers by
using payroll distributions rather than employment. The net and gross
rates of increase and decrease in payrolls by firm size are found to
be only marginally different than those of employment.
The second part of the paper looks at concentration of employment creation
and destruction within size classes. This is relevant because if growth
is highly concentrated, knowing that a firm is small will provide little
information about its prospects for growth. Most small firms would grow
relatively little, or decline, while a few expanded a lot. It is found
that both job creation and destruction is highly concentrated among
relatively few firms in all size groups, but it is greater among small
and mid-sized companies than large.
Finally, attempts are made to correlate the performance of businesses
over two three-year periods. It is found that knowing that a firm is
a high performer (in terms of jobs created) over one period is of only
limited value in determining growth in the second period. This is particularly
true among small firms. These results suggest that firms which expand
rapidly during one period are replaced to some considerable degree by
others inthe subsequent period.
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