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After 2000, the Canadian economy enjoyed solid sustained growth until it entered a recession at the end of 2008. Between 2001 and 2008, employment in the business sector grew at an average annual rate of 1.8%. But in 2009, as a result of the worldwide financial crisis, Canadian business-sector employment fell 3.2%.
However, the net employment change hides the amount of labour market churning that continuously takes place as some firms contract, even in periods of growth, and other firms expand, even during recessions. A richer picture is provided by an examination of the role played by firm births, growing and declining firms, and firm exits during each year of expansion and recession.
With firm-level employment data, this paper provides an overview of the extent of the changes underlying the net employment numbers. Annual net employment changes are decomposed into gross employment creation and gross employment destruction, which allows the measurement of employment reallocation and excess employment reallocation, overall and by industry and by firm size class. Trends in shares of employment across industries and across firm size classes are also examined.
Several conclusions emerge about the 2001-to-2009 period in Canada:
- As in other countries, the amount of employment creation and destruction far exceeded net employment growth.
- Also similar to other countries, employment destruction was more sensitive to business cycles than was employment creation.
- As in the United States, there has been a downward trend in annual rates of employment creation, destruction, and reallocation.
- Continuing firms that were expanding were responsible for more employment creation than were entrants. Continuing firms that were shrinking were responsible for more employment destruction than were exits, even during the 2008/2009 recession.
- Because of substantial volatility in the net employment growth of large firms over the business cycle, the relative contribution of small and large firms to net employment growth fluctuated each year.
- The share of employment in firms with fewer than 50 employees increased slightly at the expense of medium-sized firms (100 to less than 500 employees).
- The average size of firms declined, as did the size of births and exits.