Study: Firm Dynamics: Employment Growth Rates of Small Versus Large Firms in Canada, 1999 to 2008

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The drivers of employment growth are firm age, industry-specific factors and time-specific circumstances relating to macroeconomic events.

While small firms in the business sector create proportionally more jobs than large firms, this pattern disappears once the age of the firm, industry and time period are taken into account.

Once these characteristics are considered, firms above the size threshold of 20 employees, on average, expand their workforce proportionately more than firms below this threshold.

Among firms that have fewer than 20 employees, the smallest ones grow more slowly than the largest ones. This is partially the result of higher exit rates among the youngest small firms.

The size of a firm per se is not a contributing factor to employment growth, except in the case of the very smallest firms, which grow more slowly, not more quickly, than larger firms. It is really age that is the key distinguishing factor behind slow- and fast-growing firms.

These results are consistent with those obtained by American researchers who studied the annual employment of business-sector firms in the United States over the 14-year period from 1992 to 2005.

The Canadian study analysed the year-over-year employment growth patterns of firms between 1999 and 2008.

As of 2008, the Canadian business sector comprised more than one million incorporated and unincorporated firms with employees. Close to half (48%) the firms—slightly more than half a million—had more than 1 but fewer than 10 employees.