Smaller businesses endured recession better: study

Canada's small- and medium-sized businesses in the private sector fared better during the recession than their larger counterparts, a new report suggests.

Canada's small- and medium-sized businesses in the private sector fared better during the recession than their larger counterparts, according to an RBC Economics report.

Construction jobs took one of the biggest hits during the recession, especially affecting smaller businesses, a new report suggests. ((CBC))

Paul Ferley, assistant chief economist, RBC, said the findings debunk concerns that small- and medium-sized enterprises (SMEs) are generally more impacted by economic downturns.

"Countering concerns that smaller enterprises are generally more impacted by economic downturns, we found that smaller businesses endured the recent recession better than their larger counterparts," Ferley said in the report.

"The relative success of private-sector SMEs likely reflected lower exposure to external markets such as the United States, which saw greater weakness compared to Canada's domestic economy."

The report found private SMEs in Canada with fewer than 300 employees coped better with the recession, and have recovered at a more rapid pace than larger private enterprises.

It also found businesses that depend on the U.S. export market had a more difficult time than those more focused on the domestic market, which was not hit as hard by the recession.

"During difficult economic times, businesses often find themselves laying off workers and stalling their hiring initiatives," said Mike Michell, RBC's director, small business. "However, private-sector SMEs appear to have created business strategies that have ultimately helped them come out of the downturn relatively unscathed."

Employment at private SMEs fell 4.2 per cent during the recession, compared to 5.5 per cent among larger private firms. The private-sector SMEs seemed to have had lower exposure to markets in the United States than the larger firms.

Regional differences

Looking at firms of all sizes, private goods-producing industries — including manufacturing, construction, mining, oil and gas, logging, forestry and utilities — took the biggest hit to employment through the recession, declining 11.1 per cent from a fourth-quarter peak in 2007.

Regionally, SME employment in Newfoundland and Labrador remained strong during the economic downturn, although payrolls on average declined by 1.2 per cent, compared to larger firms, which saw employment dip 4.3 per cent. Manufacturing bore the brunt of the declines.

Employment at large firms in Quebec fell 6.2 per cent, with more than half of the decline coming from manufacturing, while employment at private SMEs fell 2.6 per cent.

Job losses in Ontario's manufacturing sector were responsible for half of the decline in total private-sector employment, the study showed. Within manufacturing, large firms saw employment fall 19.2 per cent from the third quarter of 2008 to the fourth quarter of 2009, compared to 10.4 per cent at SMEs.

Employment at SMEs in Alberta dropped 7.4 per cent compared to 5.6 per cent among large firms. A nine per cent dip in construction jobs, compared to a gain of 1.1 per cent at large firms, was the main driver. Meanwhile, jobs at large firms in the mining, quarrying, and oil and gas extraction industries fell by 16.2 per cent, compared to a decline of 7.7 per cent at SMEs.

Similar to Alberta, large firms in British Columbia generally outperformed their SME counterparts, which were dragged down by the construction sector, where payrolls fell by 11.6 per cent compared to an increase of 1.9 per cent at large firms.