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Small and Big Business Contributions to Employment Growth
T Kryger
Statistics Group
30 May 2000
Introduction
Over the past decade, the number of employed persons in Australia has
grown by 12 per cent, slightly ahead of the growth in population of 10
per cent. This Research Note examines the question of whether most of
this growth in employment can be attributed to the small business sector
or to the big business sector. It also shows how the effect of enterprises
moving between sectors can influence this analysis.
Definitions
The ABS definition of small business is private enterprises with less
than 20 employees. The two exceptions to this are manufacturing and agriculture.
In manufacturing, because of the large scale of its operations, a small
business is defined as one with less than 100 employees(1).
In agriculture, because of the volatility of employment, a small business
is defined as one with an estimated Value of Agricultural Operations between
$22 500 and $400 000.
All businesses that are not small business enterprises as defined above
are referred to in this Research Note as big business enterprises (actually
a combination of medium size and big businesses).
The Problem of Inter-Sector Transfers
Firm size is not static and as such there are always some enterprises
changing their status from small to big business and vice versa. This
effect is particularly noticeable during times of recession when small
business employment is boosted by large businesses that downsize to small
business status. This means that small business employment will not fall
as much as it otherwise would and could even increase. Conversely, during
periods of economic growth, big business employment is boosted by small
businesses that grow to big business status. When this happens, then not
just the growth in employment but total employment of the small business
enterprise is counted as an increase in big business employment. Small
business employment is therefore biased upwards during times of recession,
and biased downwards during an economic expansion. The opposite is the
case for big business.
Employment growth in a particular sector therefore does not mean that
all its growth originated in that sector. This needs to be borne in
mind when analysing employment growth by business size.
Employment by Business Size
While employment overall grew by 12 per cent in Australia during the
1990s, employment in the small business sector grew by 20 per cent, private
big business employment grew by 19 per cent and public sector employment
fell by 15 per cent. The fall in public sector employment contrasts markedly
with the other sectors and is attributed to the large number of privatisations
that occurred in the 1990s (Commonwealth Bank, QANTAS, etc.), the outsourcing
of functions previously performed by the public sector (Commonwealth Employment
Service to Job Network) and general cutbacks in public sector employment.
While there was little difference between the small and big business sectors
in terms of their growth rates over the whole of the 1990s, quite a different
picture emerges when the 1990s are looked at as two distinct periods.
The first period to consider is from March 1990 to March 1993. This includes
the last recession and is a time when employment generally was in decline.
While private big business employment fell by 12 per cent over this period,
small business employment grew by 5 per cent. The ability of small business
employment numbers to increase at a time when the labour market generally
was contracting may reflect the versatilty of small business operators
to adapt to changed circumstances. More likely, however, is the fact that
small business employment numbers were boostered by large businesses downsizing
to small business status.
The second period, from March 1993 to the present, corresponds with the
turnaround in employment after the recession. Total employment grew by
16 per cent over this period. Small business employment grew by 14 per
cent, much slower than big business employment which grew by 35 per cent
over the period. The effect on big business employment of small businesses
upgrading to big business status could well be significant in this case.
Conclusion
Employment growth cannot be analysed in terms of the sector from which
it originated but can be analysed in terms of its destination. Thus it
can be said that in the early part of the 1990s the only employment growth
that occurred is that which ended up in the small business sector. By
contrast, most employment growth in the latter part of the 1990s ended
up in the big business sector.
Endnote
1. The decline in the number of large scale manufacturing establishments
brings into question whether this special treatment of manufacturing
is still justified.
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