OECD Compendium of Productivity Indicators 2023

5. Productivity in SMEs and large firms

Context

Focusing on relatively aggregated industries can mask heterogeneity in productivity among firms within the same industry and, in particular, the contribution of small and medium-sized enterprises (SMEs). In several 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 can also spur aggregate productivity growth when they exploit new technologies and stimulate productivity-enhancing changes by incumbents.

Productivity by firm size

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. Other factors such as human capital (e.g. workforce skills, management skills) also explain differences in productivity across firms (Criscuolo et al., 2021).

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 counterparts, 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 information and communications technologies (ICT). This is consistent with (Andrews et al.,2015) showing that young, often small, firms tend to be more innovative than their mature counterparts.

• 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.

Indicators

 

 

 

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 during the reference year. Data on hours worked by all persons employed are typically not available by enterprise size class.

Value added and total employment for different enterprise size classes are sourced from OECD Structural and Demographic Business Statistics (database). They typically do not perfectly align with the corresponding estimates in national accounts. The latter include several 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 also be affected by differences in the share of part-time employment. In addition, productivity differences in the main aggregate sectors could mask different productivity patterns in more narrowly defined industries.

In this chapter, “business economy” covers mining and quarrying (B), manufacturing (C), electricity, gas, steam and air conditioning supply (D), water supply, sewerage, waste management and remediation activities (E), construction (F) and business services (excluding finance and insurance activities). Business services include wholesale and retail trade, repair of motor vehicles and motorcycles (G); transportation and storage (H); accommodation and food services (I); information and communication services (J); real estate activities (L); and professional, scientific, administrative and support activities (M and N) (letters between brackets correspond to the industry codes in ISIC rev. 4).

Data sources

OECD Structural and Demographic Business Statistics (database), http://dx.doi.org/10.1787/sdbs-data-en.

References and further reading

Andrews, D., Criscuolo, C. and Gal, P. (2015), “Frontier Firms, Technology Diffusion and Public Policy”, OECD Productivity Working Papers, No. 2,  OECD Publishing, Paris, https://doi.org/10.1787/5jrql2q2jj7b-en.

Criscuolo, C., Gal, P., Leidecker, T. and Nicoletti, G. (2021), "The human side of productivity: Uncovering the role of skills and diversity for firm productivity", OECD Productivity Working Papers, No. 29, OECD Publishing, Paris, https://doi.org/10.1787/5f391ba9-en.

OECD (2021), OECD SME and Entrepreneurship Outlook 2021, OECD Publishing, Paris, https://doi.org/10.1787/97a5bbfe-en.

OECD (2017), Entrepreneurship at a Glance 2017, OECD Publishing, Paris. http://dx.doi.org/10.1787/entrepreneur_aag-2017-en.