Small matters
Economic contribution of self-employment, micro and small enterprises is bigger than previously thought, says ILO
Self-employment, micro and small enterprises play a far more important role in providing jobs than previously believed, according to new report by the International Labour Organization (ILO).
Data gathered in 99 countries found that these so-called “small economic units” together account for 70% of total employment, making them by far the most important drivers of employment, according to the study titled “Small Matters”.
The study also found that an average of 62% of employment in these 99 countries is in the informal sector, where working conditions in general tend to be inferior, with a lack of social security, lower wages, poor occupational safety and health and weaker industrial relations.
A comparison of the different regions indicates that self-employment as a share of total employment is highest in South Asia (67%), followed by subSaharan Africa (50%) and the Middle East and North Africa (44%).
The combined employment share of small economic units decreases as a country’s income level rises. This share is highest in countries in South Asia, Africa and the Middle East.
In each of these regions, the self-employed have the highest employment shares of all the size classes examined. Together, the self-employed and micro-enterprises account for almost 70% of employment in the Middle East and North Africa, and for more than 80% in both South Asia and sub-Saharan Africa.
By contrast, medium-sized and large enterprises play a prominent role in East Asia and the Pacific and in Europe and Central Asia, where they account for 46% and 43% of employment, respectively.
The report finds that in high-income countries, 58% of total employment is in small economic units, while in low and middle-income countries the proportion is considerably higher. In countries with the lowest income levels the proportion of employment in small economic units is almost 100%, the report says.
The employment share of small economic units decreases with rising country income levels while the employment share of medium-sized and large enterprises increases with rising country income level.
The estimates draw on national household and labour force surveys rather than using the more traditional source of enterprise surveys that tend to have more limited scope. Microenterprises are defined as having up to nine employees, while small enterprises have as many as 49 employees.
“To the best of our knowledge, this is the first time that the employment contribution of so-called small economic units has been estimated, in comparative terms, for such a large group of countries, particularly low and middle income countries,” said Dragan Radic, Head of the ILO’s Small and Medium Enterprises Unit.
The report advises that supporting small economic units should be a central part of economic and social development strategies. It highlights the importance of creating an enabling environment for such businesses, ensuring that they have effective representation and that social dialogue models also work for them.
Other recommendations include: understanding how enterprise productivity is shaped by a wider “ecosystem”; facilitating access to finance and markets, advancing women’s entrepreneurship, and encouraging the transition towards the formal economy and environmental sustainability.