Have small firms created a disproportionate share of new jobs in Canada?
A reassessment of the facts
by John R. Baldwin, Richard Dupuy and Garnett Picot
Business and Labour Market Analysis Division
Analytical Studies Branch research paper series, No. 071
The statistical observation that small firms have created the majority
of new jobs during the 1980s has had a tremendous influence on public
policy. Governmentshave 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.
This paper addresses various measurement issues raised inthe recent
research, and uses a very unique Canadian longitudinal data set that
encompasses all companies in the Canadian economy to reassess the issue
of jobcreation 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)employment
decreases monotonically as the size of firm increases, no matter which
method of sizing firms is used. The small firm sector has accounted
for adisproportionate share of both gross job gains and job losses,
and in that aggregate, accounted for a disproportionate share of the
employment increase over theperiod. Measurement does matter, however,
as the magnitude of the difference in the growth rates of small and
large firms is very sensitive to the measurementapproaches used.
The paper also produces results for various industrial sectors, asks
whether the more rapid growth in industries with a high proportion of
smallfirms is responsible for the findings at the all-economy level,
and examines employment growth in existing small and large firms (ie
excluding births). It is found thatemployment growth in the population
of existing small and large firms is very similar.
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