Latin American Capital Markets

392 HANNESTAKACS AND KINGA KORCSMAROSJob CreationThe importance of SMEs for job creation is widely acknowledged. Between 1969 and1979,81 percent of net new jobs created were attributable to businesses with fewerthan 100 employees. 3 SMEs account for approximately half the total employment inthe OECD area, although differences can be observed between countries and sectors.In the European Union, SMEs provide jobs for 70 million people, thus accountingfor two-thirds of total employment In Japan, small businesses account for 78 percentof employment, and in the United States, SMEs provide employment for morethan half of all private sector workers (OECD 2000).Hallberg (2000, p. 3) argues, "While gross job creation rates are substantiallyhigher for small firms, so are gross destruction rates.This is because small firms exhibithigh birth and death rates, and many small firms fail to grow." Net job creation rates(gross job creation less gross job destruction) do not show a systematic relationshipto firm size in developed countries (Davis, Haltiwanger, and Schuh 1993). Becausesmall businesses have higher gross job creation and higher destruction rates than largeenterprises, SMEs may offer less job security compared with large enterprises (Hallberg2000). However job destruction during recessions is usually lower for SMEs,probably because of the greater wage flexibility in small businesses; that is, small andmedium entrepreneurs may accept lower wages in times of recession in order tokeep their businesses (Haltiwanger 1999). Firm sizes change and businesses continuouslystart up and die, making it difficult indeed to prove whether SMEs generate themost jobs in an economy.Performance and InnovationIn the OECD, in the service and manufacturing sectors, businesses with fewer than 10employees produce approximately 20 percent of output, and those with fewer than 50employees produce more than 40 percent of output. In the United States, enterpriseswith fewer than 19 employees generate 10 percent of the manufacturing output, andmedium-size businesses contribute more or less the same amount (Hallberg 2000).SMEs also tend to be more and more global.Their contribution to manufacturedexports worldwide is around 25-35 percent (OECD 2000). SMEs tend to be increasinglyinvolved in international strategic alliances and joint ventures on national andinternational levels.They are adopting Internet technologies and electronic commerceat an unusually fast pace, allowing them easy and fast access to global markets.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub3http://www.cfib.ca/nesearch/neports/jobengine.pdf (04.12.2001).