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Attachment B
More National Results
Employment creation among hyper and strong growth firms by size of firm
While small businesses accounted for the majority of employment creation among the hyper and strong growth firms, there are differences between these two types of growth firms. Among hyper growth firms, 68 percent of the jobs were created by small business and only 13 percent by large businesses. Moreover, 45 percent of employment creation in hyper growth firms took place in business that had fewer than 20 employees at the start of the period. Very small businesses were therefore important among hyper growth firms.Footnote 8
Among strong growth firms the small business contribution to employment creation between 1985 and 1999 was less than in hyper growth firms but still very significant at 58 percent of all net new jobs. Large firms were responsible for 23 percent of new jobs in strong growth firms compared to 13 percent in hyper growth firms. Among small business, net employment creation was more evenly spread among the different size classes – businesses with fewer than 20 employees contributed 29 percent, as did businesses with 20 to 99 employees.
Consequently very small businesses were very important in hyper growth firms and one can infer that, although firms with less than a full year of operation were excluded from these tabulations, many of these firms were still in the start-up stage during 1985-1989. Strong growth firms are found more evenly across all size classes.
Changes in size groups for all continuing firms, 1985-1999
Table E shows the transition matrix for all continuing firms and provides a useful comparison with Table C discussed in the main text. Table C is the transition matrix for hyper and strong growth firms only. As before, the 1985 size for all continuing firms is shown in the left hand column and the size group by 1999 is shown horizontally across the columns. Thus the first cell shows that 78 percent of firms who had 1 to 4 employees in 1985 still had 1 to 4 employees in 1999; 20 percent of these firms grew to have 5 to 19 employees in 1999 and a further 2 percent of firms grew even larger to between 20 and 49 employees by 1999. The diagonals in the table show the percentage of firms that were in the same size group in both 1985 and 1999, i.e. their size of firm group did not change. Table E shows that, generally, the vast majority of continuing firms either stayed in the same group or grew (to the right) or shrank (to the left) by only one size group.
| Size Group in 1999 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Size Group in 1985 | 1 to 4 | 5 to 19 | 20 to 49 | 50 to 99 | 100 to 199 | 200 to 499 | 500 plus | Total |
| 1 to 4 | 78% | 20% | 2 % | 0.2% | 0.1% | 0% | 0% | 100% |
| 5 to 9 | 29% | 56% | 12% | 2% | 1% | 0.1% | 0% | 100% |
| 20 to 49 | 8% | 27% | 43% | 16% | 4% | 1% | 0.2% | 100% |
| 50 to 99 | 5% | 9% | 23% | 38% | 20% | 5% | 1% | 100% |
| 100 to 199 | 5% | 5% | 10% | 21% | 37% | 20% | 4% | 100% |
| 200 to 499 | 3% | 4% | 5% | 6% | 19% | 42% | 21% | 100% |
| 500 plus | 2% | 2% | 3% | 3% | 3% | 14% | 73% | 100% |
As should be expected, far fewer hyper and strong growth firms stayed "on the diagonal" and their movement to the right is far more pronounced than among all continuing firms.
Growth and the business cycle
Tabulations for 1985-90, 1990-93 and 1993-99 show that hyper growth firms increased their number of workers at an annual rate of 34% in the first period, retracted at 0.5% per year in the second and grew again at a 1.8% annual rate in the final period. Similarly, strong growth firms grew on average at a rate of 13% per year over 1985-90, shrank 1.0% per year during the recession and bounced back at a 2.1% rate over 1993-99.
Slow growth firms fared worse during the recession – their employment shrank at 1.4% per year. Their pre-recession annual rate of growth of 3.3% became an anaemic 0.2% after 1993.
Firms classified as in decline over 1985-89 slowed down their shedding of jobs throughout the period: Annual rates were -5.0% over 1985-90, -3.2% over 1990-93 and -0.6% over 1993-99.
Put another way, by 1990 hyper and strong growth firms had grown to 82% of where they would end up in 1999, and smartly resumed their growth after 1993. Slow growth firms, in contrast, by 1990 had swelled to 123% of their 1999 destination, suffered worst in the recession and barely resumed growing over 1993-99.
Perhaps more than any other tabulation, the analysis by sub-periods points to a characteristic of all these tabulations: They portray the cohort of the base year – in this case all firms in existence in 1985 – and in particular those that survived to 1999. Given the same end year, later cohorts face an increasingly easier condition of survival and are re-enforced by new firms entering the marketplace. Choosing the period of analysis – its starting point with regard to the business cycle and the number of years in the comparison – is closely tied to the research or policy question being pursued.
Knowledge-based industries
Special tabulations were obtained for knowledge-based industries (KBIs), at least as defined by a 3-digit mapping of the 4-digit Tier 1 and Tier 2 list provided in Clendenning (2000).Footnote 9 Six thousand seven hundred or 3.4% of all continuing firms were in KBIs. They were somewhat more likely to meet the hyper or strong growth criteria than were continuing firms in general (5.2% of all high-growth firms and 4.1% of the strong growth group). Hyper growth KBIs grew faster (at 15.4% per year) than all hyper growth firms (12.2%) and there was a similar though lesser edge for KBI firms in the other groups.
Wages in KBI firms in both 1985 and 1999 were 40 to 60% above the corresponding Canadian aggregate in all types of firms and they grew faster across the board.
In all, 10% of KBI firms were hyper or strong growth firms and these firms accounted for 29% of job growth in the sector. Ten to 13% of job growth in all hyper, strong or slow growth firms was on account of KBIs, while their share of job loss among declining firms was only 4%. This made these 6,700 KBI firms responsible for 23% of the net job gain among continuing firms over the period.
Footnote 8 A one-employee firm need only to have grown to 2.5 employees in four years (and survived to 1999) to have been classified as a hyper growth firm. Growth to at least 1.5 in four years would have qualified it as a strong growth firm.
Footnote 9 E. Wayne Clendenning & Associates, "Comparison and Reconciliation of SIC and NAICS Industry Codes Used to Define Knowledge-Based Industries (KBIs)." Paper prepared for SBB, May 2000.