15
October 2018
PDF version [300KB]
Geoff
Gilfillan
Statistics and Mapping Section
Executive
summary
- Around 4.8 million people worked for small businesses at the end
of June 2017—up 66,000 or 1.4 per cent compared with the previous year. Since
2013 the number of small business employees has increased by 197,000 or 4.3 per
cent.
- The small business share of total employment in selected
industries has fallen from 46 per cent at the end of June 2009 to 44 per cent
at the end of June 2017. This is primarily due to stronger growth in the number
of employees working for large and medium–sized enterprises in this period compared
with small firms (growth of 578,000 for larger enterprises and 283,000 for
medium–sized businesses compared with growth of 212,000 for small businesses).
- While the small business sector accounted for close to 44 per
cent of total employment in selected private sector industries, it accounted
for 35 per cent of total Industry Valued Added (IVA) for the same industries
combined, 34 per cent of sales and service income and only 28 per cent of total
wages and salaries.[1]
Contents
Executive summary
Introduction
What is a small business?
Industry scope of the ABS survey
Key findings
Small business contribution to
private sector employment
Figure 1: number of people employed
by small businesses—June 2009 to 2017
Change in small business share of
total employment in selected industries
Figure 2: composition of employment
by business size
Figure 3: cumulative change in share
of employment by business size
Small business share of key economic
aggregates in selected industries
Table 1: small business share of key
economic aggregates (%)—end of June 2017
Table 2: IVA per worker by industry
and firm size—end of June 2017
What do these results tell us about
the contribution of the small business sector to the Australian economy?
Small business share of employment by
state and territory
Figure 4: small business share of
employment by state and territory—June 2017
International experience
Conclusion
Introduction
This statistical snapshot sheds light on
the contribution of the small business sector to the Australian economy using
key economic indicators such as employment and Industry Value Added (IVA).
What is a small business?
In this statistical snapshot we use the
Australian Bureau of Statistics (ABS) definition of small businesses—those
employing fewer than 20 people. Categories of small businesses under the ABS
definition include:
- non‑employing businesses (sole
proprietorships and partnerships without employees)
- micro‑businesses (businesses employing
between 1 and 4 people including non‑employing businesses)
- other small businesses (businesses that employ
between 5 and 19 employees).
The ABS defines a medium sized business as
employing between 20 and 199 employees while large businesses employ 200 or
more employees.
In the context of accessing small business entity
concessions, the Australian Taxation Office (ATO) defines a small business as a
firm that has annual revenue turnover (excluding GST) of less than $10 million.
If businesses are completing a tax return for 2015–16 or an earlier income
year, their previous year's turnover must be less than $2 million to be
assessed as a small business.[2]
The Australian Securities and Investment Commission (ASIC) define
'small proprietary companies', as companies with at least two out of the
following three characteristics:
- an annual revenue of less than $25 million
- fewer than 50 employees at the end of the financial year
-
consolidated gross assets of less than $12.5 million at the end
of the financial year.[3]
Industry
scope of the ABS survey
Employment estimates by firm size are published by the ABS
annually as part of the Australian
Industry publication. The employment estimates are derived using a
combination of data collected directly from the annual Economic Activity Survey
(EAS) conducted by the ABS, and Business Activity Statement (BAS) data provided
by businesses to the Australian Taxation Office (ATO).
The scope of the survey data includes all business entities
operating in the Australian economy apart from entities:
-
in most industries classified to General government (Only private
sector businesses located in the industry divisions of Public administration
and safety, Education and training, and Health care and social assistance are
included. However, general government businesses classified as part of Water
supply, sewerage and drainage services are included)
- classified to the industry subdivisions of Finance, Insurance and
superannuation funds, and Auxiliary finance and insurance services
- classified to the industry subdivisions of Public administration,
Defence and Private households employing staff and undifferentiated goods–producing
and service–producing activities of households for their own use.
Key findings
Small
business contribution to private sector employment
ABS data shows there were 4,770,000 people working for small
businesses at the end of June 2017—up 66,000 or 1.4 per cent compared with the
previous year.
Figure 1: number of people employed
by small businesses—June 2009 to 2017
Source: ABS, Australian
Industry, cat. no. 8155.0
Since 2013, the number of small business employees has
increased by 197,000 or 4.3 per cent.
Change in
small business share of total employment in selected industries
The small business share of private sector employment in
selected industries fell from 46 per cent at the end of June 2009 to 44 per
cent at the end of June 2017. During the same period the share accounted for by
large sized firms increased from 30 per cent to 32 per cent. Medium sized
businesses accounted for just under a quarter (24 per cent) of all employed
persons at the end of June 2017—the same share they had at the end of June
2009.
Figure 2: composition of
employment by business size
Source: ABS, Australian
Industry, cat. no. 8155.0
Between 2009 and 2012 the small business share of total private
sector employment in selected industries fell by three percentage points to 43
per cent and has remained around this share since. In contrast, the large
business share increased by around three percentage points to 33 per cent by
2016 but has since fallen slightly to 32 per cent in 2017.
Figure 3: cumulative change in
share of employment by business size
Source: ABS, Australian
Industry, cat. no. 8155.0
Small
business share of key economic aggregates in selected industries
Table 1 below shows that, while the small business sector
accounted for close to 44 per cent of total employment in selected private
sector industries, it accounted for 35 per cent of total Industry Valued Added
(IVA)[4]
of those industries, and only 28 per cent of the total wages and salaries paid
by firms in those industries.
Table 1: small business share of
key economic aggregates (%)—end of June 2017
| Industry |
Total
employment |
Total IVA |
Wages and
salaries |
| Agriculture,
forestry and fishing |
77.7 |
76.9 |
53.5 |
| Mining |
8.9 |
8.3 |
5.5 |
| Manufacturing |
31.0 |
20.0 |
18.8 |
| Electricity,
gas, water and waste services |
12.5 |
10.0 |
7.1 |
| Construction |
71.1 |
59.0 |
47.3 |
| Wholesale
trade |
33.8 |
21.4 |
22.4 |
| Retail
trade |
33.3 |
28.9 |
26.4 |
| Accommodation
and food services |
45.9 |
35.7 |
37.0 |
| Transport,
postal and warehousing |
43.5 |
25.8 |
19.5 |
| Information
media and telecommunications |
23.4 |
10.0 |
12.7 |
| Rental,
hiring and real estate services |
76.1 |
76.6 |
50.5 |
| Professional,
scientific and technical services |
52.4 |
43.3 |
35.2 |
| Administrative
and support services |
30.0 |
26.9 |
21.3 |
| Public
administration and safety (private) |
23.1 |
23.7 |
19.3 |
| Education
and training (private) |
22.2 |
15.7 |
12.6 |
| Health
care and social assistance (private) |
30.0 |
39.4 |
24.6 |
| Arts
and recreation services |
38.8 |
22.3 |
22.8 |
| Other
services |
68.2 |
61.2 |
51.6 |
| Total
selected industries[5] |
43.8 |
34.7 |
28.1 |
Source: ABS, Australian
Industry, cat. no. 8155.0
Table 1 shows the small business share of IVA is similar to
their share of total employment in industries such as Agriculture, forestry and
fishing; Mining; Rental, hiring and real estate services; and private sector
components of Public administration. The small business share of total IVA is
much lower than their employment share in Manufacturing; Construction; and
Information, media and telecommunications, but much higher in private sector
components within Health care and social assistance.
Table 2: IVA per worker by industry and firm size—end of
June 2017
| Industry |
Small ($) |
Medium ($) |
Large ($) |
| Agriculture, forestry and fishing |
72,422 |
77,885 |
67,476 |
| Mining |
743,143 |
776,182 |
812,950 |
| Manufacturing |
77,490 |
105,529 |
167,219 |
| Electricity, gas, water and waste services |
374,385 |
270,895 |
535,972 |
| Construction |
90,763 |
121,218 |
199,948 |
| Wholesale trade |
76,384 |
123,051 |
172,628 |
| Retail trade |
50,441 |
73,041 |
57,765 |
| Accommodation and food services |
31,719 |
48,991 |
47,803 |
| Transport, postal and warehousing |
74,894 |
120,565 |
183,385 |
| Information media and telecommunications |
93,175 |
131,032 |
296,202 |
| Rental, hiring and real estate services |
202,236 |
143,464 |
269,195 |
| Professional, scientific and technical services |
92,889 |
122,271 |
147,252 |
| Administrative and support services |
57,962 |
70,251 |
65,630 |
| Public administration and safety (private) |
73,889 |
64,909 |
77,135 |
| Education and training (private) |
48,086 |
74,691 |
72,915 |
| Health care and social assistance (private) |
97,911 |
60,951 |
66,326 |
| Arts and recreation services |
35,300 |
68,365 |
84,770 |
| Other services |
56,894 |
77,571 |
75,281 |
| Total selected industries |
82,470 |
95,764 |
140,363 |
Source: ABS, Australian
Industry, cat. no. 8155.0
Table 2 shows IVA per worker in small firms in Agriculture,
forestry and fishing is higher than IVA per worker in medium and large sized
firms in the same industry. But for most industries IVA per worker is much
higher in large firms than it is for medium and smaller firms—particularly in
Manufacturing, Construction, Wholesale trade, and Information media and
telecommunications.
What do
these results tell us about the contribution of the small business sector to
the Australian economy?
The results showing IVA per worker for small businesses in
Australia is lower than IVA per worker for medium and larger firms in a number
of key industries is consistent with international studies. These studies show
larger firms are more likely to produce greater output per worker than smaller
firms as a result of deriving the benefits from economies of scale in terms of
lower output costs from increased production.[6]
ABS data shows employees of small businesses are paid less
than employees of medium and large size firms given their smaller share of
total wages and salaries (28 per cent) compared with their employment share (44
per cent). This finding would appear to confirm employees of smaller firms
receive wages and salaries that are commensurate with their relatively low
labour productivity.
Differences in wages paid by small and large firms could be
influenced by a number of factors including the skill composition of the
workforce and the prevalence of casual part-time employees. International
research shows larger firms in the private sector tend to have a more highly
skilled workforce who tend to be paid more on average than workers in smaller firms
as a reward for their skills. Larger firms are also more likely to have a union
presence that may assist in negotiating higher wage outcomes.[7]
Data from the Household Income and Labour Dynamics in
Australia (HILDA) survey shows smaller firms are more likely than larger firms to
use casual workers.[8]
Australian research found casual part‑time workers experience an earnings
penalty of around six per cent for men and eight per cent for women compared
with their permanent employee counterparts.[9]
More recent analysis by the Organisation of Economic Co-operation and
Development (OECD) showed non–permanent workers in Australia experienced a wage
penalty of between two and three per cent compared with permanent workers.[10]
Small
business share of employment by state and territory
Figure 4 shows the small business share of total employment
in each state and territory. New South Wales and Tasmania had the largest small
business shares of total employment of selected private sector industries (45.6
per cent and 45.5 per cent respectively) at the end of June 2017 while the
Northern Territory had the smallest small business share (34.8 per cent).
Employment in the small business sector in the NT fell by
4,000 in the 12 months to the end of June 2017 whereas employment in larger
firms grew by 7,000. This contributed to a decline in the small business share
of total employment in the territory from 39.8 per cent in 2016 to 34.8 per
cent in 2017.
The slowing of the economy in WA is evident from the fall of
small business employment by 28,000 (or 5.5 per cent) in the 12 months to June
2017 along with a fall in employment among large firms of 23,000 (or 5.3 per
cent). Employment in medium sized firms in WA remained relatively stable.
Figure 4: small business share of
employment by state and territory—June 2017
Source: ABS, Australian
Industry, cat. no. 8155.0, Customised Report
International
experience
The United States has also experienced a declining small
business share of total employment. Analysis of US Bureau of Labor Statistics
data shows the share of total private sector employment accounted for by firms
employing fewer than 20 workers in the US fell from 20 per cent in 1993 to 17
per cent in 2017 while the share working for very large firms (employing 1,000
workers or more) has increased from 36 per cent to 40 per cent over the same
period.
While not directly comparable, this data shows the small
business share of total private sector employment in the US is much smaller
than the small business share of selected industries employment in Australia.
The Economist reported that ‘big firms are generally more
productive, offer higher wages and pay more taxes than small ones’ while ‘economies
dominated by small firms are often sluggish’. The article also noted that ‘big
firms can reap economies of scale’ and ‘size allows specialisation, which
fosters innovation’. But the author cautions that large firms ‘can be slow to
respond to customers' needs, changing tastes or disruptive technology’.[11]
OECD data analysis shows labour productivity for large and
medium sized firms (for all OECD countries that provided firm size data) is
greater than labour productivity achieved by smaller firms in both manufacturing
and business services industries.[12]
The OECD found:
To the extent that large firms can
exploit increasing returns to scale, productivity tends to increase with firm
size. However, new small firms are often found to spur aggregate productivity
growth as they enter with new technologies and stimulate productivity enhancing
changes by incumbents.[13]
The OECD concluded:
Larger firms are on average more
productive than smaller ones, particularly in the manufacturing sector, partly
reflecting increasing returns to scale, for instance, through capital intensive
production. But smaller firms can outperform larger firms, particularly in the
services sector, reflecting competitive advantages in niche, high brand or high
intellectual property content activities as well as the intensive use of
affordable ICT. In most countries, labour productivity gaps between micro and,
to a lesser extent small and medium–sized firms, and large firms are relatively
high, in particular, in the manufacturing sector. However, differences in
productivity across size classes are smaller in the business services sector.[14]
Conclusion
The small business sector accounts for a significant share
of total employment in Australia but that share has fallen slightly over the
past eight years. This trend is consistent with trends observed overseas.
Research conducted by the OECD shows evidence of lower wages
and labour productivity in smaller firms compared with larger firms in a number
of industrialised OECD countries. However, little research has been conducted
in this space in Australia.
[1]. The ABS survey
data used to determine these estimates excludes parts of the Finance and
insurance industry, Government owned organisations in a number of industries,
Public administration and Defence.
[2]. ATO, Work
out if you are a small business for the income year.
[3]. ASIC, Are
you a large or small proprietary company?
[4]. IVA is an
estimate of the difference between the market value of the output of an
industry and the purchases of materials and expenses incurred in the production
of that output. Sales and service income includes sales of goods, income from
services and income from rent, leasing and hiring. Wages and salaries are gross
(before tax) earnings of all employees in businesses.
[5]. The ABS survey
data used to determine these estimates excludes parts of the Finance and
insurance industry, Government owned organisations in a number of industries,
Public administration and Defence.
[6]. The
Economist, Small
is not beautiful: Companies and productivity, 3 March 2012.
[7]. Haugen, F.J., Firm-size wage
premiums around the world: Evidence from PIACC, June 2016.
[8]. Parliamentary
Library, Characteristics
and use of casual employees in Australia, January 2018.
[9]. Watson, I., Contented
Workers in Inferior Jobs? Re-assessing Casual Employment in Australia, Journal
of Industrial Relations, Vol. 47, No. 4, December 2005, pp. 371–392.
[10]. OECD, In
it together: Why Less Inequality Benefits All, 2015.
[11]. The Economist,
Small is not beautiful: Companies and productivity, 3 March, 2012.
[12]. OECD, Compendium
of Productivity Indicators 2017, p. 67.
[13]. OECD, op. cit.,
p. 66.
[14] OECD, op. cit.,
p. 66.
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.
This work has been prepared to support the work of the Australian Parliament using information available at the time of production. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.
Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Enquiry Point for referral.