Key Small Business Statistics - July 2005

What is the contribution of small businesses to employment creation by growth firms?

The Canadian economy is a dynamic one with a great deal of churning, that is, the entry and exit of firms. Within this ever-changing environment, start-ups and new firms are very important for creating jobs and wealth, but a small number of growth firms make very large contributions to employment creation. Industry Canada's Small Business Policy Branch has completed several studies on firm growth and job creation using firm-level data on Canadian employer firms. The first study^{Footnote 15} examined the 1985–1999 period, which covers both expansionary and recessionary periods.

Businesses that operated over the full period were categorized, based on their employment growth between 1985 and 1989, as hyper growth (those that grew more than 150% over these four years), strong growth (50–150% growth), slow growth (positive growth less than 50%) or declining firms (negative growth). Firms were then tracked between 1985 and 1999 to investigate which firms contributed to employment growth and how many small firms grew into larger firms.

Although churning was responsible for the bulk of job creation between 1985 and 1989, continuing businesses made a very important contribution to job creation over this period. Of the 728 000 firms operating in 1985, only 199 000 firms continued to operate in 1999, and they created nearly 500 000 net jobs. Small firms (businesses with fewer than 100 employees) contributed greatly to employment growth over this period with net job creation of 661 000. Medium-sized businesses (those with between 100 and 499 employees) created 184 000 jobs, while large businesses (those with 500 or more employees) shed 348 000 jobs over this period.

The contribution of hyper and strong growth enterprises to employment creation is remarkable, particularly on the part of small businesses. As seen in Table 17, hyper and strong growth firms numbered 48 000, accounting for less than 7% of the number of private sector firms in operation in 1985, but created 974 000 jobs over these 14 years. Over 47 000 of these firms were small businesses and they created 612 000 jobs, accounting for 123% of the net jobs created in the private sector. This included 155 000 jobs created by micro hyper and strong growth businesses. Furthermore, the actual contribution of very small firms is likely understated because owner-operators are likely not included as employees. In contrast, employment in slow growth and declining firms fell over the 1985–1989 period principally because of the 528 000 jobs lost in large firms.

Table 17: Number of Businesses, Net Employment Creation and Percentage Contribution by Growth Category and Size of Firm, Canada, 1985–1999

Growth Category		Small (0–99)	Medium (100–499)	Large (500+)	All Firms
Source: C. Parsley and E. Dreessen, Growth Firms Project: Key Findings, Industry Canada, 2004.
Hyper and Strong Growth Firms (at least 50% employment growth between 1985 and 1989)	Number of Businesses	47 302	592	111	48 005
	%	23.8	0.3	0.1	24.1
	Jobs Created	612 243	181 461	180 717	974 421
	%	123.0	36.5	36.3	195.8
Slow Growth and Declining Firms (less than 50% employment growth between 1985 and 1989)	Number of Businesses	146 299	3 638	935	150 872
	%	73.6	1.8	0.5	75.9
	Jobs Created	49 098	2 514	-528 408	-476 796
	%	9.9	0.5	-106.5	-95.8
All Continuing Firms	Number of Businesses	193 601	4 230	1 046	198 877
	%	97.3	2.1	0.5	100.0
	Jobs Created	661 341	183 975	-347 691	497 625
	%	132.9	37.0	-69.9	100.0

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Footnote 15. Further results and more information on the database are available in Growth Firms Project: Key Findings at http://www.ic.gc.ca/sbresearch/growthfirms/highlights.