JOB CREATION BY COMPANY SIZE CLASS - THE MAGNITUDE, CONCENTRATION ANDPERSISTENCE OF JOB GAINS AND LOSSES IN CANADA

The statistical observation that small firms have created the majority of new jobs during the 1980s has had a tremendous influence on public policy. Governments have looked to the small firm sector for employme nt growth, and have promoted policies to augment this expansion. Howev er, recent research in the U.S. suggests that net job creation in the manufacturing small firm sector may have been overestimated, relative to that in large firms. The first part of this paper addresses various measurement issues raised in the recent research, reassess the issue of job creation by firm size, and pushes this work beyond the manufact uring sector by employing longitudinal data covering all companies in the canadian economy. We conclude that over the 1978-92 period, as a g roup small firms did account for a disproportionate share of both gros s job gains and losses, and net employment increases, no matter which method of sizing firms is used. Measurement does matter, however, as t he magnitude of the difference in the growth rates between small and l arge firms is very sensitive to the measurement approaches used. Part one of the paper also produces results for various industrial sectors, and examines employment growth in existing small and large firms (i.e ., excluding births). It is found that employment growth in the popula tion of existing small and large firms is very similar. Attempts are m ade to introduce a job quality aspect to the analysis by using payroll rather than employment data. Payroll data allow any relative change i n hours worked or wages paid in small (relative to large) companies to be incorporated in the findings. This did not significantly alter the conclusions reached using employment data only. The second part of th e paper looks at concentration and persistence of employment creation and destruction within size classes. If growth is highly concentrated, knowing that a firm is small will provide little information about it s prospects for growth. Most small firms would grow relatively little, or decline, while a few expanded a lot. It is found that both job cre ation and destruction is highly concentrated among relatively few firm s in all size groups. There are fast growing firms in all size classes , and although most job creation is found in the small firm sector, th e fastest growing large firms out-perform the majority of small firms in any given period. Finally, the employment creation performance of b usinesses are compared over two three-year periods. It is found that k nowing that a firm is a high performer (in terms of jobs created) over one period is of only limited value in determining growth in the seco nd period. This is particularly true among small firms. These results suggest that firms which expand rapidly during one period are replaced to some considerable degree by others in the subsequent period.