Business dynamics in Canada, 2001

By Sri Kanagarajah

Throughout the 1990s, changes in the economic environment have altered the way Canadian employers do business. Globalization has opened new market opportunities for some Canadian firms while confronting others with increased pressures of competition in the domestic and world markets. The recession in the early 90s and the technology boom after the mid-1990s have had a significant impact on business and employment creation and destruction. Likewise, the tremendous growth of technology and biotechnology industries during the last half of the decade has been a new feature of the Canadian economy.

Since the mid-1990s, the Canadian unemployment rate has been decreasing. As a result, there were about 2.2 million more workers in 2001 than in 1991. Canada, along with the United States and the United Kingdom, led the G-7 countries in terms of economic growth after mid 1990s. Canada 's total debt burden moved from being the second highest in the G-7 in the mid-1990s to among the lowest in the G-7 by 2001. On the international front, a number of trade liberalization initiatives, such as NAFTA, have been completed. The increasingly knowledge-intensive economy has led governments and policy makers to look at policies to encourage and maintain economic growth in this new economy. How did these changes affect Canadian businesses?

The goal of this report is to provide highlights of the impact of these economic changes on business dynamics over the past decade. Some of the key findings show that there were about 1 million businesses in Canada in 2001. The vast majority (92%) employed less than 20 workers and accounted for 21% of total employment. In contrast, a minority (0.2%) of firms employed 500 or more employees but represented 42% of total employment. These proportions have changed little over the last decade.

Between 1991 and 2001, the number of firms in Canada grew 9%. Alberta led in growth with 31% British Columbia and Ontario followed with 15% and 9%, respectively.

During this period, the number of businesses grew, on average, by 8,500 on a yearly basis. However, the number of new firms that started to operate each year averaged 140,500, i.e., more than sixteen times the net increases in businesses observed during the period. The number of deaths averaged 132,000.

Business creation in the high knowledge sector was quite strong during the mid-1990s. Between 1996 and 1999, the proportion of new-born companies in high knowledge industries varied between 18% and 20%, much higher than the rate of 15% observed in this sector in the early 1990s. Even though the rate of business creation in these industries dropped after 1998, it stood at 16% in 2001, much higher than the rate of 13.6% observed that year for the whole economy.

Of all firms that were born in the 1990s, roughly one quarter ceased to operate within the first two years. About 36% survived five years or more and only one-fifth were still in operation after ten years. Overall, the chances of survival have improved slightly during the 1990s. Firms that were born during the second half of the 1990s were more likely to keep operating than their counterparts born in the early 1990s, partly as a result of the economic recovery that followed the 1990-92 recession.