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This paper examines how firm size affects estimates of aggregate labour productivity. The business sector is divided into small-, medium- and large-sized enterprises. Estimates of labour productivity are generated for each group.
Labour productivity is an indicator of the efficiency with which labour is used in the production process. Differences in labour productivity arise from differences in the scale of production, the amount of capital available per worker, the skills possessed by owners, and other organizational characteristics (including technology) possessed by firms (see Baldwin et al. (2008) for a discussion of the determinants of differences in labour productivity).
In 2008, the level of productivity, as measured by nominal gross domestic product (GDP) per hour worked, was much greater for large ($72) than for medium-sized ($42) and small businesses ($35). The gap is widest in industries where large firms are more prevalent.
For capital-intensive industries (mining and oil and gas, utilities, manufacturing, transportation, and information), nominal GDP per hour worked in large businesses is relatively higher than in medium-sized and small businesses.
Over the 2002-to-2008 period, the gap between small and large firms in GDP per hour worked narrowed, particularly in industries where large firms were less prevalent.
Increases in average firm size might be expected to affect overall productivity. However, if the share of employment in large firms increased by 10%, aggregate labour productivity would rise by only an estimated 2%.
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