A Small Business Crisis: April Labour Force Survey numbers

A Small Business Crisis: April Labour Force Survey numbers

Employment data from March and April highlight the economic disruption created by COVID-19, in particular for small businesses and those not working in the knowledge economy.
A Small Business Crisis: April Labour Force Survey numbers
Viet Vu
Economist
Steve Denney
Research Collaborator + Ph.D, Munk School of Global Affairs and Public Policy
May 20, 2020
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In our previous piece COVID-19 and Joblessness: A Firm Perspective, we argued that the structural differences between large and small firms, especially in how they make strategic decisions and in their access (or lack thereof) to resources, impacts how they can respond to the economic shocks caused by COVID-19. Using the April Labour Force Survey data, we re-examined the labour force dynamics across firm types. We have two main takeaways: 

  • The economic crisis continues to disproportionately affect workers at smaller firms, which is consistent with what we saw in March. This further indicates that support policies must acknowledge these differences in order to target their support in the areas that different firms need. A targeted approach will help to limit short-run disruption and secure long-term economic competitiveness.
  • We also saw a convergence in the types of industries that experienced disruptions. In March, non-knowledge service industries, such as Retail Trade and Food & Accommodation were most affected and in April, Construction and Manufacturing industries reported a large number of lay-offs. It is important to note that  larger firms in the knowledge economy saw little disruption in both March and April. This may indicate their ability to leverage digital technologies to adapt both their workplace and business to a virtual environment.

The April Labour Force survey was collected for the reference week of April 12 to April 18, a week when appropriate public health responses related to COVID-19 crisis were adopted in most places across the country, resulting in disruptions to work. By this point, the first set of applications to the Canadian Emergency Response Benefits had been approved and on April 12, the legislation that formally created the Canadian Emergency Wage Subsidies program received royal ascent (though it would be 4 weeks until the program would be in operation).

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The differences we observe show that larger firms were better able to avoid lay-offs, though sometimes through less than ideal means, such as a reduction of  hours or shifts, or by placing employees on temporary paid or unpaid leave.

In Canada between February and April 2020, total employment for companies that employ between 0-19 workers fell by a staggering 30.7 percent. This is in contrast to a 12.7 percent reduction in total employment for companies that employ over 500 people. The differences we observe show that larger firms were better able to avoid lay-offs, though sometimes through less than ideal means, such as a reduction of  hours or shifts, or by placing employees on temporary paid or unpaid leave.

That said, not all large companies were immune to the impacts of economic shock. Air Canada, for example, announced a decision to lay off over 16,000 staff towards the end of March. After the details of the wage subsidies were publicized, however, they were able to create a plan to rehire all of the employees that were deemed redundant. This is consistent with patterns we note below as to how different industries have experienced different impacts from the COVID-19 pandemic.

Figure 3 shows the cumulative percent change in employment across industries from March to April 2020. With the exception of smaller firms in primary industries, the data shows that economic shutdown and social distancing measures continue to have a greater impact on smaller firms, especially for those with less than 20 employees (and sole proprietorships).

Small firms that are not part of the knowledge economy* (a definition we derived from grouping service industries using NAICS that do not require face-to-face interaction) were the hardest hit (-36 percent), with small knowledge-economy firms fairing slightly better with a -19 percent change in employment. For firms in the 20 to 99 employee range, the cumulative change in employment was not as severe as it was for some of the smaller firms. On average, these firms shed about 24 percent of their workers, with no significant differences across industries. 

However, once we move to larger firm groups, there are notable differences. First, the overall decrease is less stark, especially for firms with more than 500 employees. Second, there is notable variation by industry. In particular, knowledge economy firms have cut significantly fewer jobs than other larger firms (outside of the knowledge economy). For companies with 100–500 employees, there was only a 7 percent decrease in employment, while those with more than 500 workers saw an even smaller decrease(-2 percent).

Our analysis  supports the idea that larger firms are structurally different than smaller firms, especially in their ability to absorb economic shock. Accordingly, larger firms have been better able to withstand the economic disruption compared to their smaller peers. We also find that larger knowledge economy firms are particularly well placed to ride out the economic disruptions caused by COVID-19. These firms, such as a Shopify  or UbiSoft, can more easily adapt to social distancing protocols and can make better (and quicker) use of digital technologies to have employees work from home.

As the economy cautiously opens up in the coming months, we expect some recovery in work to take place—and certainly a recovery of hours worked at these large firms. We’ll be watching closely for indications of job recovery for smaller firms and what this might mean for entrepreneurial ecosystems across Canada.

*Knowledge economy industries include: Finance and Insurance; Professional, Scientific, and Technical Services; and Information, Culture and Recreation. “Non-knowledge Economy Services” include: Wholesale Trade; Retail Trade; Transportation and Warehousing; Real Estate and Rental and Leasing; Business, Building, and Other Support Services; Education Services; Health Care and Social Assistance; Accommodation and Food Services; Other Services; and Public Administration. “Primary Industries” include: Agriculture; Forestry and Logging; Fishing, Hunting and Trapping; and Mining, Quarrying, and Oil and Gas Extraction. “Secondary Industries” include: Utilities; Construction; and Manufacturing (durable and non-durable goods).

For media enquiries, please contact Coralie D’Souza, Director of Communications, Events + Community Relations at the Brookfield Institute for Innovation + Entrepreneurship.

Viet Vu
Economist
Steve Denney
Research Collaborator + Ph.D, Munk School of Global Affairs and Public Policy
May 20, 2020
Print Page

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