Private sector businesses and employment dynamics in Canada in 2020
Business entry and exit rates, as well as employment dynamics, reacted strongly to the COVID-19 pandemic. Restrictions on business activity due to the pandemic inhibited business formation and accelerated business failure. As a result, entry rates declined sharply, while exit rates rose to a record high.
Final annual estimates of business and employment dynamics in the private sector at the national and provincial level, by North American Industry Classification System industry or by firm size class and drawn from the Longitudinal Employment Analysis Program, are now available for 2020. The new estimates for 2020 are being added to existing data tables that contain annual estimates going back to 2001.
While monthly estimates of business openings and closings from January 2015 to August 2022 are available (Monthly estimates of business openings and closures, August 2022), the annual data provide a longer time frame for analysis, which permits comparisons with the 2001 recession and the 2008/2009 financial crisis. Additionally, the annual source data permit the calculation of employment creation and employment destruction, which is not available monthly. The annual series use more information for tracking businesses across calendar years that leads to more accurate estimates. Data for 2020 include the first part of the year when firms operated under non-pandemic circumstances as well as the period when pandemic restrictions were enacted.
In 2020, the entry rate for new private-sector employer businesses declined 2.5 percentage points, from 14.1% in 2019 to 11.6% in 2020. This was the lowest entry rate since reporting started in 2002 and the largest decline on record.
Entry rates decreased across the country, with 2020 marking the lowest entry rates on record for 11 of the 13 provinces and territories that reported. The lowest entry rates in the country were recorded in Quebec and New Brunswick, while the largest declines in entry rates occurred in Ontario and Alberta.
The exit rate for private sector employer businesses increased by 2.2 percentage points, from 11.7% in 2019 to 13.9% in 2020. This was the highest exit rate on record, and one which greatly exceeded the exit rate seen during the 2009 recession in Canada.
Unlike the situation for the entry rates, the exit rates during the pandemic did not represent the highest values on record for the majority of provinces and territories. In 2020, the exit rates for Ontario, Alberta and for Canada overall were the highest on record. Entry and exit rates tend to decline over time, which means that values from previous decades tend to be higher than current values. Consequently, the pandemic-induced changes in exit rates in Ontario and Alberta, which are also the largest changes across the provinces, were sufficiently large to surpass changes observed over the past two decades.
Due to the pandemic, Canadian private sector net employment growth decreased by 10% in 2020. Net employment growth is a measure of the total change in full-time equivalent employment among private sector employers. Net employment growth arises from changes in four subcomponents: employment creation by entrants (+1.2%), employment creation by growing incumbents (+6.2%), employment destruction by exits (-1.5%) and employment destruction by declining incumbents (-15.9%). As was the case in each year after 2000, the expansion and contraction of incumbent enterprises accounted for the majority of the fluctuation or turnover that occurred in private sector employment in 2020.
During the pandemic, government support programs helped keep businesses active in 2020 and limited the increases in exit rates. These programs also aimed to support employment within incumbent firms. Nevertheless, the restrictions on businesses led to the largest increase in gross employment destruction on record. Gross employment destruction reached 17.4% in 2020. This greatly exceeds the rate of gross employment destruction from the 2009 recession.
Note to readers
The private sector covers all industrial sectors except those primarily involved in educational services, health care and social assistance, and public administration. It includes unclassified businesses.
Annual business entry and exit estimates and monthly estimates of business openings and closures are available. The two are related but present some differences. The annual estimates are based on the Longitudinal Employment Analysis Program, which uses T4 records and statistical enterprises from the Business Register to form longitudinal firms. The availability of the annual T4 data allows the creation of additional longitudinal firm links between apparent exits and entrants that share a large percentage of employment. See "The Measurement of Firm Entry in the Longitudinal Employment Analysis Program" for more details. In contrast, the monthly estimates of business openings and closures are timelier because they are based on the Business Register and the monthly PD7 Payroll Deduction files. See "Monthly Business Openings and Closures: Experimental Series for Canada, the Provinces and Territories, and Census Metropolitan Areas" for additional details. Furthermore, the definitions of opening and closure depend on the month-to-month change in the employer status of a business, while the definitions of entrant and exit depend on the employer status of a business over a longer period.
For monthly estimates of business openings and closures, see the Daily release "Monthly estimates of business openings and closures, August 2022.''
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