Employment stagnation in SMEs could hurt global economy – ILO

October 10, 2017 - 1:21 PM
A worker cuts metal at a small metal factory in Indonesia. (Reuters file)

MANILA, Philippines — The contribution of small and medium-sized enterprises, or SMEs, to total employment has stagnated over the past year and, unless reversed, could hurt the global economy, the International Labor Organization warned in a new report.

The “World Employment and Social Outlook 2017: Sustainable Enterprises and Jobs” note that between 2003 and 2016, “the number of full-time employees within SMEs nearly doubled, with the share of total employment attributable to SMEs rising from 31 percent to 35 percent.”

“However, in the past year, their contribution to total employment has stagnated,” it added. “Between 2015 and 2016 the contribution of SMEs to total employment remained virtually unchanged, increasing from 34.6 to 34.8 percent.”

In the meantime, global unemployment hit 201 million workers in 2017, “an increase of 3.4 million compared to 2016,” the ILO said.

(Graph by ILO)

The United Nations agency underscored the importance of SMEs in generating “decent jobs” around the world.

“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,”the ILO said.

While the report pointed out that “private sector enterprises accounted for the bulk of global employment in 2016,” accounting for 2.8 billion workers, or 87 percent of total employment, and “permanent full-time employment in SMEs grew more than in larger firms between 2003 and 2008 — on average 4.7 percentage points higher in small and 3.3 percentage points higher in medium-sized enterprises — employment growth premium of SMEs was absent during the period between 2009 and 2014.”

ILO deputy director general for policy Deborah Greenfield stressed the need for policies “to better promote SMEs and a better business environment for all firms, including access to finance for the younger ones” to reverse the employment stagnation in the sector.

The report noted that “job dynamics among young firms in terms of full-time permanent employment have also weakened since the global financial crisis.”

“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” reflecting the overall business environment with newer companies “shedding jobs at a much faster pace than before.”

The ILO report also linked formal training for permanent employees not just to higher wages but higher productivity and lower unit labor costs as well, “while increasing the use of temporary employment is associated with lower wages and lower productivity, without any implications for unit labor costs.”

And while acknowledging innovation as “an important source of competitiveness and job creation for enterprises,” the ILO also noted that in some cases, it has “led to more intensive use of temporary workers (particularly, in firms with product and process innovation) and to higher concentration of women in temporary employment.”

It also said “full-time female permanent employees in the formal sector are more likely to be found in SMEs than in large firms” — around 30 percent in SMEs compared to 27 percent in large enterprises – while “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 labor market,” it noted.