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EMPLOYMENT GENERATION BY THE SMALL BUSINESS SECTOR
It is also possible to analyse the employment change for the different business size categories by looking at individual industries. Table S4.2 shows data for the same time periods classified by industry divisions of the Australian and New Zealand Standard Industrial Classification (ANZSIC). Although the overall growth in employment in small and other sized businesses between 1983-84 and 1996-97 was almost the same, there are some observable differences at the industry level and, within the small business category, between employees and people working in their own business. Looking only at the end points of a time series can disguise changes that have occurred within the time period. Examining the small business share of total employment over the period 1983-84 to 1996-97 shows there was a steady growth in the small business share of total employment through the late 1980s up until 1993-94. Thereafter there was a fairly rapid decline, so that by 1996-97 the share was almost back to 1983-84 levels (graph S4.3). CHANGE IN SMALL BUSINESS EMPLOYMENT BETWEEN 1993-94 and 1996-97 The decline which occurred since 1993-94 is illustrated in table S4.4. The overall growth rate of private sector employment was 5.2% per annum, with the small business sector growing by 3.6% and the other business sector growing by 7.0%. It is worth noting that this overall rate of growth in employment appears to be much larger than for the total employment estimate derived from the LFS. This difference is discussed earlier in this article. The main reason for it is that the scope of this analysis relates only to private sector employment, and there has been a substantial change in proportions between private and public sectors over this period. The growth in total small business employment (3.6%) over the period 1993-94 to 1996-97 continued at a little above the long term average of 3.2% (from table S4.1). This was achieved solely through a significant increase in the number of small business employees over the period. Growth in small business employees averaged 5.3% per year, well above the longer tern rate of 3.6%. By contrast, the growth in persons working in their own business was slightly negative at -0.3% per annum. The major reason for the shift in share of employment from the small business sector to the larger business sector was the stronger growth in employment in the larger businesses. Over the three years 1993-94 to 1996-97, employment levels in businesses other than small businesses have grown at 7.0% per annum, more than twice the rate recorded over the 13 year period to 1996-97. In summary, the fall in the small business share of total employment over the three years to 1996-97 can be attributed to two main factors: a decline in growth of people working in their own business, and much stronger growth in the number of people working in larger businesses. Examining the data at the industry level would provide further insight into the shift in employment patterns.
LONGITUDINAL ANALYSIS The above analysis discusses employment change in Australia at the macro level, examining net employment change by business size and industry across different time periods. However, researchers have been aware for some time that such broad analysis may hide many underlying factors which are very important for policy purposes. For example, decomposing the net employment change into its various components enables an analysis of the following:
To address these and other issues relating to the growth and performance of Australian businesses, particularly small businesses, the ABS established BGAPS, in conjunction with the Office of Small Business. The survey is planned to run for five years, commencing in respect of 1994-95. Survey data are now available for three years (1994-95, 1995-96 and 1996-97). The survey has provided data to allow some of the above issues to be analysed, but there is not yet a sufficient time series to support a comprehensive analysis. The ABS has done some analyses of the survey results, and these have been published in the ABS publication Small and Medium Enterprises, Business Growth and Performance Survey, Australia, 1995-96 (8141.0). A more detailed analysis of the job generation issues has been undertaken using results from the 1994-95 survey, and these are reported in an ABS working paper Analysis of Employment Change at Australian Firms. The following summarises some of the conclusions from the working paper, as well as showing the aggregate job generation and destruction flows from the 1995-96 survey. The scope of BGAPS, and therefore the scope of this analysis, includes most non-agriculture employing firms in the private sector. Non-employing firms are excluded. Also excluded are the Education and the health and community services industries which, from the analysis presented above, have been two of the major growth industries in recent years. RESULTS FOR 1994-95 The 1994-95 survey, representing the first year of a longitudinal survey, is more akin to a regular 'snapshot' survey undertaken by ABS. However, because some data items (employment, sales and value of exports) were collected for three years in this first survey, it has provided a set of retrospective longitudinal data on employment, albeit based only on a sample of firms which were in operation at the end of the period. the limitations when using such a dataset include the inability to measure the impact of firms which are newly born or which die during the period. it is only possible to measure the impact of firms which continued operation over the period. The first conclusion from this analysis relates to the extent to which net employment change hides a great deal of job turnover. The survey measured net employment change for continuing businesses of 137,000 in 1993-94 and 149,000 in 1994-95. Table S4.5 shows a dissection of employment change over two twelve month periods, 1993-94 and 1994-95.
The table shows that the net employment change of 137,000 persons for 1993-94 was made up of 266,000 new jobs generated and 129,000 jobs destroyed. A summary statistic has been derived to describe the job turnover or 'churning' that may be concealed beneath the net change figures. This 'churnover' statistic is the ratio of job turnover to net job change for each size category. for 1993-94, there was a 'churnover' factor of 2.9, while 1994-95 showed an even greater degree of jobs churning over, indicated by a factor of 3.4. In 1993-94, the 'churnover' for small businesses was about the same as for larger businesses. However, for 1994-95, the small business sector appears to have a far greater degree of job turnover than other businesses, as suggested by a 'churnover' factor of 4.5 compared to 2.8. For the small business sector in 1994-95, there were nearly 250,000 jobs turned over, for a net increase in employment of only 55,000 jobs. The net employment change was nearly the same as in 1993-94, but the turnover of jobs was 28,000 greater. Looking at the concentration of job generation and destruction, it appears that there were more firms generating jobs than destroying them. In 1994-95, 18% of firms increased their employment by more than 10%. By comparison, in 1995-96, 26% of firms increased their employment by more than 10% and about 23% decreased their employment by more than 10%. Small business, which includes 94% of in scope businesses, reflected these rates very closely. RESULTS FOR 1995-96 AND 1996-97 The 1995-96 survey, being the second year of the longitudinal study, allowed the impact of new and ceased businesses to be assessed, rather than just using a static framework and sample as was used for the 1994-95 analysis above. This analysis can be continued as each subsequent survey in the longitudinal series becomes available. Table S4.6 shows revised job generation and destruction estimates for 1995-96, and table S4.7 shows the results from the 1996-97 survey as published in Small Business in Australia (1321.0).
The survey showed that total employment generated during 1996-97 was 952,000, made up of 557,000 jobs in new businesses and 396,000 in continuing firms. The revised data for 1995-96 show a similar picture, with 1,006,000 new jobs being generated (563,000 in new businesses and 444,000 in continuing firms). Total employment destruction during 1996-97 was 527,000 made up of 209,000 jobs from ceased businesses and 318,000 from continuing businesses. Employment destruction in 1995-96 was somewhat greater (696,000), with 335,000 jobs from ceased businesses and 361,000 from continuing businesses. Net employment generation was 425,000 in 1996-97 and 310,000 in 1995-96. As in the 1994-95 analysis, it is apparent that the net employment change figure hides a great deal of 'churnover'. In total, during 1995-96, one million jobs were generated and almost 700,000 destroyed to come to the net increase of 310,000, giving a 'churnover' statistic of 5.5. The 'churnover' factor was lower in 1996-97 (3.5) but still very significant. This was mainly due to a reduced level of employment destruction coming from ceased businesses. These 'churnover' factors are much higher than the level calculated from the 1994-95 survey, but this is because the 1994-95 survey data did not include the contribution from new or ceasing businesses. In both 1995-96 and 1996-97, the greatest proportion of net employment generation came from the small business sector, In 1996-97, the sector contributed 57% to net employment generation overall, while in 1995-96 the contribution was 64%. This analysis shows the significance of births and deaths of businesses to the job generation process. More than half the jobs generated in each year are coming from businesses which commenced during the year. Similarly, a significant proportion of job destruction arose from ceased businesses - 48% during 1995-96 and 40% during 1996-97. The inclusion of business births and deaths is vital in any study of job generation to give a more complete understanding of the dynamics of change in employment patterns. These factors are also important in the development and formulation of employment policy for the small business sector. The results from the longitudinal analysis, in which the small business sector is seen to contribute more strongly to net employment growth than larger businesses, appears to contradict the result discussed earlier, derived from the point-in-time analysis. The reasons for the apparent anomaly are as follows:
CONCLUSION Time series generated from point-in-time surveys present a useful picture for the analysis of employment in the different business size categories. However, a longitudinal dataset allows the investigation of a number of the more complex issues associated with employment patterns in Australian firms. The ABS Business Growth and Performance Survey will in the future allow for a detailed study of job generation and destruction in Australia, unlike any that has been possible before. The tracking of firms longitudinally will enable the comparative impacts of births and deaths to be measured as well as the derivation of a number of other statistical indicators to show the concentration and persistence of job growth. It will also allow the decomposition of employment growth by size of business, age of business, sex, industry, type of employment, and State/Territory. Factors which might influence employment generation can also be examined using longitudinal analysis techniques. The use of longitudinal data will also have the advantage of overcoming the impacts of firms swapping size boundaries, which is claimed by some international researchers to be a very significant problem for employment growth analyses. While the BGAPS will become more useful for job generation and destruction analyses when a longer time series is available, two important points have become evident to date:
The analyses in this article present a complex picture of the relative importance of the small and larger business sectors to employment growth. The initial analysis showed that both small business and larger businesses increased employment quite significantly in Australia over the past decade. There were periods when growth was stronger in the small business sector, and periods when larger businesses dominated. However, the longitudinal analysis for the two years June 1995 to June 1997 shows that, over that period, small business was the strongest contributing sector to employment growth. The analysis also shows the critical importance of the formation of new businesses and the cessation of existing businesses to net job generation. It is also clear that analysing net employment change alone will not bring to bear a significant amount of other information which is important to economic management in Australia. REFERENCES ABS publications Small and Medium Enterprises, Business Growth and Performance Survey, Australia, 1995-96 and 1996-97 (8141). Small Business in Australia 1321.0). Other publications Birch, D.L. 1987, Job Creation in America: How Our Smallest Companies Put the Most People to Work, Collier MacMillan Publishers, London. Borland, J. and Home, R. 1994, Establishment-Level Employment in Manufacturing Industry: Is Small Really Beautiful?, Department of Economics, University of Melbourne, Research Paper 395, February 1994. Davis, S.J. and Haltiwanger, J. 1990, 'Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications', NBER Macroeconomics Annual, pp. 123-168. Davis, S.J. and Haltiwanger, J. 1992, ' Gross Job Creation, Gross Job Destruction, and Employment Reallocation', The Quarterly Journal of Economics, vol. CVII, pp. 819-863. Davis, S.J., Haltiwanger, J. and Schuh, S. 1993, 'Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts', NBER Working Paper No. 3392. Davis, S.J., Haltiwanger, J. and Schuh, S. 1996, Job Creation and Destruction, MIT Press, Cambridge, Massachusetts. Hemmings, P. 1991, 'Firm size and Employment Dynamics', Labour Economics and Productivity, vol. 3, no. 2, September 1991, pp. 153-162. Mumford, K. and Smith, P.N. 1997, 'Gross Job Flows and Reallocation in Australia', Working Paper, Department of Economics, University of Melbourne. O'Brien, M. 1998, 'Analysis of Employment Change at Australian Firms', Working Paper, ABS, Canberra. Picot, G., Baldwin, J. and Dupuy, R., 'Small Firms and Job Creation - A Reassessment', Canadian Economic Observer, January 1995. Revesz, J. and Lattimore, R. 1997, 'Small Business Employment', Industry Commission Staff Research Paper, Industry Commission, Canberra. Document Selection These documents will be presented in a new window.
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1301.0 - Year Book Australia, 1999
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/02/1999
This page last updated 18 June 2009