Business Dynamics in Canada, 2001

by Sri Kanagarajah
Business and Labour Market Analysis Division
Catalogue No. 61-534-XWE

Context

The primary goal of this publication is to show the evolution of the Canadian business environment in light of economic changes in Canada during the 1991 to 2001 period. It is intended to provide statistics and overview of business and employment dynamics in Canada during this period. Some of the key findings should help provide some fuel for policy discussion on employment and firm dynamics in the new knowledge based economy. The secondary goal is to market the LEAP database as a useful tool for data tabulations on topics related to employment and business dynamics.

Objectives

This publication attempts to answer the following questions:

• Which sectors of the economy experienced the strongest or weakest growth over the past decade?
• How has business creation changed over time?
• Is business creation greater than business destruction?
• Has survival rates of firms changed over time?
• Are firms faring better now than in the past?
• Why has firm creation and firm destruction decreased over time?
• What is the average number of employees in a small business, medium sized business and large sized business?

Findings

There were about 1 million businesses in Canada in 2001. The vast majority (92%) employed less than 20 workers and accounted for 21% of total employment. In contrast, a minority (0.2%) of firms employed 500 or more employees but represented 42% of total employment. These proportions have changed little over the last decade.

Between 1991 and 2001, the number of firms in Canada grew 9%. Alberta led in growth with 31% British Columbia and Ontario followed with 15% and 9%, respectively.

During this period, the number of businesses grew, on average, by 8,500 on a yearly basis. However, the number of new firms that started to operate each year averaged 140,500, i.e., more than sixteen times the net increases in businesses observed during the period. The number of deaths averaged 132,000.

Business creation in the high knowledge sector was quite strong during the mid-1990s. Between 1996 and 1999, the proportion of new-born companies in high knowledge industries varied between 18% and 20%, much higher than the rate of 15% observed in this sector in the early 1990s. Even though the rate of business creation in these industries dropped after 1998, it stood at 16% in 2001, much higher than the rate of 13.6% observed that year for the whole economy.

Of all firms that were born in the 1990s, roughly one quarter ceased to operate within the first two years. About 36% survived five years or more and only one-fifth were still in operation after ten years. Overall, the chances of survival have improved slightly during the 1990s. Firms that were born during the second half of the 1990s were more likely to keep operating than their counterparts born in the early 1990s, partly as a result of the economic recovery that followed the 1990-92 recession.

Data sources: Longitudinal employment analysis program (LEAP), 1991 to 2001.

View the article in the Daily about this publication.