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The Progressive Economics Forum

StatCan Debunks Small-Business Mythology

Canadian economic commentators often worship small business as the supposed source of economic dynamism and growth. This cult of small business has greatly influenced public policy, with federal and provincial governments giving huge tax preferences to small corporations.

But new Statistics Canada research finds: “The gap between the levels of labour productivity in Canada and the United States is due primarily to the larger share of employment in small firms in Canada and their comparatively lower labour productivity vis-a-vis large firms.”

Of course, productivity is not an end unto itself. Gains in labour productivity are not always shared with workers. In recent decades, median employment income has lagged far behind productivity growth.

But workers are better able to negotiate a share of productivity gains with large firms because union organizing is more practical in large workplaces. In Canada, union coverage is 55 per cent in establishments with more than 500 employees, but only 15 per cent in establishments with fewer than 20 employees.

Reflecting this combination of higher productivity and more collective bargaining, average weekly earnings exceed $1,000 at establishments with more than 500 employees. By contrast, this average is as low as $736 among establishments with between 5 and 19 employees.

Large employers are also far more likely to provide benefits, especially if they are unionized. Bigger is better for workers.

Enjoy and share:

Comments

Comment from Richard Pereira
Time: January 9, 2014, 5:30 am

A locally based company with 100 or 50 employees is more likely to achieve a better negotiation outcome for workers on wages, benefits and working conditions than at a large multinational with a foreign based head office. I have seen far too many examples of companies growing (from the small-medium category to the 500+ employee level cited), including through NAFTA enabled buyouts of Canadian firms, only to end up in excessive size and power for the employer relative to workers (even if the workers are unionized), leading to serious deterioration of wages, conditions, health and safety, benefits/pension, loss of overtime premiums etc. The unions are ignored under the free-trade rubric if the firm is large enough and can shift operations.

Bigger is not better. More like too big to fail and so powerful that they will abuse workers and aggressively lobby for bailouts, subsidies and loopholes.

And isn’t it the largest companies making the most of offshore tax havens, rather than small-local business getting all the “huge tax preferences” from governments?

Also, why is such a major large industry in Canada like banking and finance essentially completely non-unionized according the theory above? I’ve seen some small credit unions organized, but not the major banks or other very large financial companies. And did anyone mention Walmart yet?

Comment from Bill Prouten
Time: January 11, 2014, 12:37 am

Have to agree with Richard that the conclusions are somewhat specious.
Not to mention the fact that small businesses do generate jobs, because (maybe I’m wrong) they don’t yet have the comparative advantage that the larger companies do; they need to have the initial critical mass of workers to get off the ground. Once a certain size has been reached, one head office can handle the business logistics for a number of branch outlets, so the larger firm stops hiring as many upper/middle managers. And the larger firms generate capital to invest in machines/technology which can be used to replace human workers and/or increase “production”. Hence the production spread between small and large enterprise.
Again, just my guess.

Comment from Barry Rueger
Time: January 14, 2014, 12:04 am

The praise for Small Business sounds a lot like the exhortations to Shop Local.

In broad terms those are both fine, but once you look closely at all of these “Mom and Pop” operations you’ll find that

– they’re often not good employers – paying next to minimum wage, and offering nothing in benefits or job security. Or, as is often the case in construction, forcing all employees to work as “contractors” to avoid paying CPP, EI, or workers compensation.

– they’re often not particularity good at customer service. Every time that I deal with customer service at an American company I’m reminded of how terrible Canadian companies tend to be, and how some of the smallest of them – who should be striving hardest for customer satisfaction – can be among the most difficult or unpleasant to deal with.

– they’re often terrible in terms of safety or environmental practices. The biggest companies – often unionized – will generally have safety committees, and at least a reasonable standard in terms of protecting their employees. The small operators are usually the ones that have guys working three stories up with no harnesses, or that place teenagers in extremely dangerous situations without adequate training.

Small companies are also often the ones that choose not to spend the money for proper waste disposal, or who just walk away when spills happen. If you’re living hand to mouth it cheaper to dump paint down a drain than it is to haul it to the nearest recycling depot.

In broad terms you can’t just a company just on size – you need to look at actions and intent, and make informed decisions.

Comment from Dom Di Stroia
Time: January 15, 2014, 1:49 am

I have always worked for an SME, and my compensation was as good as, or better than that of some of my friends who worked at Walmart, Home Depot, or a Loblaw company.

Comment from K. Huth
Time: January 30, 2014, 12:33 pm

The objections here seem anecdotal. There are plenty of bad big corporations, but the actual story is about likelihoods and averages. Is there anything to back up the statement that locally based companies of 50 or 100 workers achieve better negotiated outcomes for workers?

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