Productivity gaps between SMEs and large firms

Productivity analyses typically focus on relatively aggregated industries, masking the heterogeneity in productivity among firms within the same sector and, in particular, the contribution of SMEs; these recognised as important drivers of growth as they scale-up. In this sense, firm heterogeneity matters for productivity. To the extent that large firms can exploit increasing returns to scale, productivity tends to increase with firm size. However, new small firms are often found to spur aggregate productivity growth as they enter with new technologies and stimulate productivity-enhancing changes by incumbents.

Key findings

In the manufacturing sector, where production tends to be more capital-intensive and larger firms can exploit increasing returns to scale, large firms show almost consistently higher levels of productivity than smaller ones. However, the relative size of productivity differences between larger and smaller manufacturing firms varies considerably across countries, reflecting in part composition effects (i.e. the specific sub-sectors in which SMEs engage). In the United Kingdom, micro-firms in the manufacturing sector have about 60% the productivity of large firms compared with about 10% in Greece and Mexico. Similarly for services, SMEs in Denmark and Sweden operate at productivity levels closer to those of larger firms but in Greece productivity levels of SMEs are between 15% and 80% lower than large firms.

Differences in productivity across firms of different size are relatively smaller in the services sector. In many countries, medium-sized firms outperform large firms, pointing to competitive advantages in niche, high brand or high intellectual property content activities as well as the intensive use of affordable ICT.

Definition

Labour productivity by enterprise size class is measured as gross value added in current prices per person employed. Labour input is measured as total employment, which includes employees and all other paid or unpaid persons who worked for the concerned unit during the reference year. Data on hours worked by all persons employed are typically not available by enterprise size class.

In the OECD Structural and Demographic Business Statistics (database), ‘business economy’ covers: mining and quarrying, manufacturing, electricity, gas, steam and air conditioning supply, water supply, sewerage, waste management and remediation activities, construction and business services (excluding finance and insurance activities). Business services include wholesale and retail trade, repair of motor vehicles and motorcycles; transportation and storage; accommodation and food services; information and communication services; real estate activities; and professional, scientific, administrative and support activities.

Comparability

Value added estimates for different enterprise size classes are based on OECD Structural and Demographic Business Statistics (database) and will typically not align with estimates in national accounts. The latter include a number of adjustments to reflect businesses and activities that may not be covered in structural business statistics, such as those made to reflect the non-observed economy. Since labour input is measured as total employment, comparability of labour productivity measures by size class may be affected by differences in the share of part-time employment. In addition, productivity differences in main aggregate sectors could mask different productivity patterns in more narrowly defined industries.

References

OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.

OECD Structural and Demographic Business Statistics (database), http://dx.doi.org/10.1787/sdbs-data-en.

OECD (2017), Entrepreneurship at a Glance 2017, OECD Publishing, Paris. http://dx.doi.org/10.1787/entrepreneur_aag-2017-en.

Figure 4.1. Labour productivity in SMEs and large firms, business economy
Value added per person employed, USD, current PPPs, 2016 or latest available year
Figure 4.1. Labour productivity in SMEs and large firms, business economy

 StatLink http://dx.doi.org/10.1787/888933968801

Figure 4.2. Labour productivity in SMEs and large firms, manufacturing and business services
Value added per person employed, index 250+=100, 2016 or latest available year
Figure 4.2. Labour productivity in SMEs and large firms, manufacturing and business services

 StatLink http://dx.doi.org/10.1787/888933968820

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