Productivity by enterprise size

Firm heterogeneity and business dynamism matter for productivity. Productivity tends to increase with firm size, as large firms exploit increasing returns to scale. 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. The reallocation of resources across enterprises, driven by firm dynamics, is also expected to increase aggregate productivity via a process of ”creative destruction”, whereby innovative firms enter the market and expand while displacing lower productivity firms.

Key facts

Larger firms are on average more productive than smaller ones, particularly in the manufacturing sector, partly reflecting increasing returns to scale, for instance, through capital intensive production. But smaller firms can outperform larger, particularly in the services sector, pointing to competitive advantages in niche, high brand or high intellectual property content activities as well as the intensive use of affordable ICT. In most countries, labour productivity gaps between micro and, to a lower extent small and medium-sized firms, and large firms are relatively high. In Ireland, average labour productivity of large manufacturing firms is significantly higher compared with other countries, reflecting in large part the high intellectual property content of their output, typically provided by foreign parents.

Labour productivity growth tends to be higher in countries with higher start-up rates and churn rates, reflecting the role of new firms in driving aggregate productivity growth.

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 industry and enterprise size class.

Churn rates reflect a country’s degree of creative destruction and business dynamism. The employer enterprise churn rate is computed as the sum of the employer enterprise birth rate and the employer enterprise death rate, following the Eurostat-OECD Manual on Business Demography Statistics. The start-up rate is defined as the share of 0-2 year-old firms in the total firm population. The services sector covers: wholesale and retail trade, repair of motor vehicles and motorcycles; transportation and storage; accommodation and food services; information and communication services; real estate activities; professional 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. This may in turn reflect differences in the value of goods and services produced, as well as different intensities in the use of knowledge-based capital.

Figure 3.5. Labour productivity by firm size, manufacturing
Value added per person employed, large firms (250 workers or more) = 100
picture

 http://dx.doi.org/10.1787/888933346587

For all countries measures of birth and death rates are in line with the Eurostat-OECD Manual. Large countries are, other things equal, likely to exhibit lower birth rates than smaller countries as firms are able to expand within the national economic territory via the creation of new establishments. For smaller countries similar events will be recorded as a birth if the parent enterprise in one country expands by the creation of an affiliate enterprise in a neighbouring country.

Sources and further reading

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/Eurostat (2008), Eurostat-OECD Manual on Business Demography Statistics, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264041882-en.

OECD (2015), Entrepreneurship at a Glance 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/entrepreneur_aag-2015-en.

Figure 3.6. Labour productivity by firm size, services
Value added per person employed, large firms (250 workers or more) = 100
picture

 http://dx.doi.org/10.1787/888933346593

Figure 3.7. Start-up rates and labour productivity growth
Percentage of total firm population (x-axis); average annual growth of gross value added per hour worked (y-axis)
picture

 http://dx.doi.org/10.1787/888933346607

Figure 3.8. Churn rates and labour productivity growth
Churn rates (x-axis); average annual growth in gross value added per hour worked (y-axis)
picture

 http://dx.doi.org/10.1787/888933346616