Productivity in SMEs and large firms
Focusing on relatively aggregated industries can mask the heterogeneity in productivity among firms within the same industry and, in particular, the contribution of small and medium-sized enterprises (SMEs). In a number of countries, a fat tail of low-productivity firms (composed in large part of small firms) co-exists with large firms, which are very productive and exposed to international competition. 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.
Firm-level productivity depends on a variety of factors, including the size of the enterprise and its sector of activity. While larger firms tend to be more productive than smaller ones, productivity in smaller firms may benefit from the intensive use of information and communication technologies (ICT), digital tools, and innovations. This is particularly true for new or younger firms. Obviously, other factors such as human capital (e.g. workforce skills, management skills) also explain differences in productivity across firms, but these factors fall outside the scope of this publication.
Key findings
Larger firms are on average more productive than smaller ones, particularly in the manufacturing sector. This typically reflects increasing returns to scale through capital-intensive production.
In some cases, smaller firms can outperform larger firms, particularly in the business services sector, reflecting competitive advantages in niche, high brand or high intellectual property content activities as well as the intensive use of affordable information and communications technologies (ICT).
In most countries, labour productivity gaps between micro and, to a lesser extent small and medium-sized firms, on the one hand, and large firms on the other hand are relatively high, particularly in the manufacturing sector. Differences in productivity across size classes are relatively smaller in business services.
How to read the indicators
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.
Value added estimates and total employment for different enterprise size classes are sourced from 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, the cross-country 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.
In the OECD Structural and Demographic Business Statistics (database), the “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.
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.
OECD Structural and Demographic Business Statistics (database), https://doi.org/10.1787/sdbs-data-en.
References and further reading
OECD (2019), OECD SME and Entrepreneurship Outlook 2019, OECD Publishing, Paris, https://doi.org/10.1787/34907e9c-en.
OECD (2017), Entrepreneurship at a Glance 2017, OECD Publishing, Paris. https://doi.org/10.1787/entrepreneur_aag-2017-en.