Key Small Business Statistics - July 2008

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

The Canadian economy is dynamic, with a great deal of churning, i.e., 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 most recent study^{Footnote 6} examined the 1993–2003 period, which covers both expansionary and recessionary periods.

Businesses that operated over the full period were categorized, based on their employment growth between 1993 and 1997, as hyper growth (those that grew more than 150 percent over these four years), strong growth (growth of 50–150 percent), slow growth (positive growth of less than 50 percent) or declining firms (negative growth). Firms were then tracked between 1993 and 2003 to investigate which firms contributed to employment growth and how many small firms grew into larger firms.

Although churning was responsible for approximately half of job creation between 1993 and 2003, continuing businesses made a very important contribution to job creation over this period. Table 8 shows that, of 799 000 firms operating in 1993, only 310 000 continued to operate in 2003, and they created 967 000 net jobs. Small firms (businesses with fewer than 100 employees) contributed greatly to employment growth over this period, creating 748 000 net jobs. Medium-sized businesses (those with between 100 and 499 employees) created 263 000 net jobs, while large businesses (those with 500 or more employees) shed 44 000 net jobs over this period.

Table 8: Number of Businesses, Net Employment Creation and Percentage Contribution by Growth Category and Size of Firm, Canada, 1993–2003

Growth Category		Small (0–99)	Medium (100–499)	Large (500+)	All Firms
[Description of table 8] Source: D. Halabisky, The Growth Process: Job Creation by Firm Age, Industry Canada, November 2006.
Hyper and Strong Growth Firms (at least 50 percent employment growth between 1993 and 2003)	Number of businesses	52 198	555	102	52 855
	% of all continuing firms	16.8	0.2	0.0	17.0
	Jobs created	584 997	186 681	225 764	997 442
	% of jobs created by continuing firms	60.5	19.3	23.3	103.2
Slow Growth and Declining Firms (less than 50 percent employment growth between 1993 and 2003)	Number of businesses	251 205	5 026	1 118	257 349
	% of all continuing firms	81.0	1.6	0.4	83.0
	Jobs created	162 487	76 530	-269 879	-30 862
	% of jobs created by continuing firms	16.8	7.9	-27.9	-3.2
All Continuing Firms (firms that operated between 1993 and 2003)	Number of businesses	303 429	5 581	1 220	310 230
	% of all continuing firms	97.8	1.8	0.4	100.0
	Jobs created	747 648	263 268	-44 037	966 880
	% of jobs created by continuing firms	77.3	27.2	-4.6	100.0

The contribution of hyper and strong growth enterprises to employment creation is remarkable, particularly on the part of small businesses. As shown in Table 8, hyper and strong growth firms numbered nearly 53 000, accounting for less than 7 percent of the number of private sector firms in operation in 1993, but created 997 000 net jobs over the 10 years between 1993 and 2003. Over 52 000 of these firms were small businesses, which created 585 000 net jobs, accounting for 60 percent of net jobs created in the private sector. This number includes 141 000 jobs created by micro hyper and strong growth businesses (not shown). 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 1993–2003 period, principally because of the 270 000 jobs lost in large firms.

Footnote 6. Further results and more information on the database are available at www.ic.gc.ca/sbresearch.