March 30, 2020

Sluggish SME development hurts jobs and the economy, ILO says


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According to the latest edition of the ’s flagship report, investing in workers, innovation and boosting trade and social dialogue are key to stem rising global unemployment.

GENEVA (ILO News) – With more than 201 million workers unemployed in 2017 – an increase of 3.4 million compared to 2016 – enterprises, particularly small and medium sized enterprises (SMEs), play a crucial role in creating decent jobs around the globe.

Between 2003 and 2016, the number of total full-time employees within SMEs nearly doubled, with the share of total employment attributable to SMEs rising from 31 per cent to 35 per cent, according to the ILO’s World Employment and Social Outlook 2017: Sustainable Enterprises and Jobs.

However, in the past year, their contribution to total employment has stagnated. Between 2015 and 2016 the contribution of SMEs total employment remained virtually unchanged, increasing from 34.6 to 34.8 per cent.

Private sector enterprises accounted for the bulk of global employment in 2016. 2.8 billion individuals were employed by the private sector, which represents 87 per cent of total employment. To reverse the recent trend of employment stagnation in SMEs, we need policies to better promote SMEs and a better business environment for all firms, including access to finance for the younger ones,” said , ILO Deputy Director-General for Policy.

In developing economies, SMEs account for 52 per cent of total employment, compared with 34 per cent in emerging economies and 41 per cent in developed economies.

Additionally, between 2003 and 2008, the growth of full-time permanent employment was on average 4.7 percentage points higher in small and 3.3 percentage points higher in medium-sized enterprises than in larger firms. However, that employment growth premium of SMEs was absent during the period between 2009 and 2014.

Job dynamics among young firms in terms of full-time permanent employment have also weakened since the global financial crisis, the report says.

The full-time permanent employment growth rate among young firms was on average 6.9 percentage points higher than for established firms during the pre-crisis period, but the difference declined to 5.5 percentage points in the post-crisis period. This change reflects developments in the overall business environment, whereby new and younger firms have been shedding jobs at a much faster pace than before.

Investing in workers key feature of sustainable enterprises

The report also finds that firms’ decisions to provide formal training for their permanent employees are associated with higher wages, higher productivity and lower unit labour costs, while their decisions to intensify the use of temporary employment are associated with lower wages and lower productivity, without any implications for unit labour costs.

Evidence indicates that, on average, enterprises that provide formal training to their full-time permanent employees pay 14 per cent higher wages, are 19.6 per cent more productive and are more competitive with 5.3 per cent lower unit labour costs, compared with those that do not offer training. Alternatively, on average, enterprises with a 10 percentage point larger share of full-time temporary employment in their total full-time employment pay 2.6 per cent lower wages, are 1.9 per cent less productive and are not any more competitive in terms of their unit labour costs.

Innovation and trade boost jobs and productivity

The report finds innovation is an important source of competitiveness and job creation for enterprises. Innovative firms, overall, tend to be more productive, create more jobs, employ more skilled workers – meaning that they employ more educated workers and offer more training – and hire more female workers.

In some cases, however, innovation has led to more intense use of temporary workers (particularly, in firms with product and process innovation) and more women are represented in temporary employment. For example, firms implementing product and process innovation tend to employ more temporary workers than non-innovators by over 75 per cent.

Trade and firms’ engagement in global supply chain are also important stimuli for job creation and productivity growth. As trade has stagnated in recent years, so too has trade-related employment. In 2016, 37.3 per cent of workers were employed in private formal exporting firms. This share is lower than the pre-crisis share of 38.6 per cent. The report notes that trading firms have higher productivity and pay higher wages than those firms not engaged in trade.

However, the productivity premiums for exporting and importing outweigh the wage premium by 13 and 5 percentage points, respectively, indicating that there is scope to share gains from trade in a more inclusive manner.

SMEs important source of female employment

The ILO research shows that full-time female permanent employees in the formal sector are more likely to be found in SMEs than in large firms. On average, and across all regions, around 30 per cent of full-time permanent employees in SMEs are women, compared with 27 per cent in large enterprises.

Moreover, the share of women’s employment, particularly in SMEs, is strongly correlated with the per capita income of a country. Greater numbers of women in enterprises may therefore have a positive impact on growth and development, because micro-enterprises and SMEs often offer women an entry point into the formal labour market.

Finally, the ILO’s flagship report insists on the key role of social dialogue between governments, employers and workers for enterprise sustainability.

While governments play an important role in shaping institutions that boost sustainable enterprises and inclusive growth, workers and their organizations advocate appropriate policies and regulations as well as representation. In turn, sustainable enterprises foster equal employment opportunities, workers’ protection and rights, and invest in workers as well as other important factors of production”, concluded Greenfield.

The WESO 2017 report will be released today with focus on sustainable enterprises and job creation in #SMEs. Don’t miss this: 

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