Business and employment dynamics data, 2023
Released: 2026-02-12
Entry rate declines and exit rate rises, yet business population expands
Following two consecutive years of increases, the business entry rate declined in 2023, falling from 13.9% in 2022 to 12.3%. This decrease followed an increase of 2.2 percentage points in 2021 and a slight growth of 0.2 percentage points in 2022.
The business exit rate increased 1.1 percentage points to 11.9% in 2023, rising from its lowest level on record the previous year (10.8%). This followed a sharp decline over the 2020-to-2022 period, during which the exit rate saw a cumulative decline of 3.2 percentage points.
Although the entry rate declined and the closure rate increased in 2023, the number of active businesses continued to grow, as the number of entrants was higher than the number of exits. As a result, the number of active businesses expanded by 0.5% (+5,340 businesses).
The 2023 growth rate of the number of active businesses was nonetheless modest relative to other years. It was well below the 3.1% growth recorded in 2022 and was lower than all annual growth rates recorded prior to the COVID-19 pandemic, except for 2009, when growth was also 0.5% during the global financial crisis.
Throughout 2023, businesses faced a challenging operating environment. From the first to the fourth quarter, businesses reported expecting multiple obstacles, including rising inflation, rising cost of inputs, and rising interest rates and debt costs. Monetary conditions also tightened over the course of the year, as the Bank of Canada's policy interest rate increased from 4.25% at the beginning of 2023 to 5.00% in July of the same year.
Financial pressures were further reflected in business distress indicators. The number of business insolvency filings increased by 41.4% from 2022 to 2023, the largest annual increase in business insolvencies in more than three decades.
Chart 1
Business entry, exit and growth rates, Canada, private business sector, 2002 to 2023
Net employment growth remains positive, as employment creation outpaces destruction
In 2023, private sector net employment growth remained positive at 3.1%. The growth in full-time equivalent employment among private sector employers seen since the outbreak of the pandemic continued in 2023, although at a slower pace than in 2021 and 2022.
Net employment growth is the difference between the total number of jobs created in the economy and the total number of jobs destroyed. Gross employment creation was 10.7% in 2023, while gross employment destruction was 7.6%. This followed a period of strong recovery after the first year of the pandemic, with net employment growing 5.5% in 2021 and 6.3% in 2022, driven by high levels of job creation (13.8% in 2021 and 14.2% in 2022).
Chart 2
Trends in employment creation and destruction, Canada, private business sector, 2002 to 2023
Gross employment creation and gross employment destruction can be understood in terms of changes across four different subcomponents: gross employment creation by entrants, gross employment creation by growing incumbent businesses, gross employment destruction by exits, and gross employment destruction by declining incumbents. Consistent with trends over the previous two decades, most of the fluctuation and turnover in private sector employment in 2023 was driven by the expansion and contraction of incumbent businesses.
In 2023, growing incumbent businesses drove employment creation, contributing 9.4 percentage points to the private sector gross employment creation (which totalled 10.7%). New businesses, or entrants, played a more modest role in employment creation, contributing 1.3 percentage points. This smaller share reflects the fact that new businesses tend to enter the market with relatively few employees and expand over time.
Meanwhile, declining incumbent businesses in 2023 led employment destruction, contributing 6.5 percentage points to the private sector gross employment destruction (which totalled 7.6%). Exits contributed minimally (1.1 percentage points) to gross employment destruction in 2023, which again reflects the impact of smaller businesses, which typically exit with fewer employees.
Data on business dynamics
These annual data provide a longer time frame for analysis, enabling comparisons with the 2001 recession and the 2008/2009 financial crisis. They also allow for calculations of employment creation and destruction, as well as metrics not available in the monthly data. Additionally, the annual series incorporates further details to track businesses across calendar years, yielding more accurate estimates.
Note to readers
The statistical series presented in this release may be revised slightly from one release to another. These revisions may result from various factors, such as adjustments in business structure or the availability of new information.
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 create longitudinal files of firms. The availability of the annual T4 data allows for the creation of additional longitudinal links between apparent exits of firms 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 based on the Business Register and the monthly PD7 payroll deduction files. These monthly data provide timely insights into business dynamics and offer a view of fluctuations, highlighting seasonal patterns and short-term trends. They can also reveal sectoral and geographic disparities in business activity and allow for more frequent trend analysis, thereby supplementing the broader insights gleaned from annual data. Furthermore, the definitions of opening and closure are based on the month-to-month change in the employer status of a business, while the definitions of entrant and exit are based on the employer status of a business over a longer period.
For more information on the monthly estimates of business openings and closures, see Monthly Business Openings and Closures.
Contact information
For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; infostats@statcan.gc.ca) or Media Relations (statcan.mediahotline-ligneinfomedias.statcan@statcan.gc.ca).
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