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close this bookJob Quality and Small Enterprise Development - Working Paper No. 4 (ILO, 1999, 35 p.)
close this folder2.0 Description of the situation
View the document(introduction...)
View the document2.1 The aggregate picture
View the document2.2 The disaggregated picture
View the document2.3 Quality as a basis for competition

(introduction...)

Underlying the context and challenges associated with the promotion of quality employment in small enterprise development is the relationship between job quality and firm size. Is it the case that there is an association between enterprise size and the quality of employment likely to be found there? If so, is this association inevitable, or is it possible that small enterprises, under the right conditions, can create quality jobs?

In fact, there is much evidence that small enterprises in the aggregate do tend to provide locations for inferior pay and most forms of non-wage qualitative conditions of employment, in comparison to larger enterprises.

2.1 The aggregate picture

Two areas of job quality will be examined by using aggregated data: wage and non-wage conditions. In respect of industrialised countries, an ILO review at the beginning of the 1990s of nine industrialised countries found that on average incomes tended to be inferior in smaller enterprises (Sengenberger et al., 1990). Other studies4 have confirmed these findings. Evidence for non-industrialised countries is less available. However, what data exists5, together with anecdotal evidence suggests that incomes tend to rise with firm size. For example, a 1995 World Bank survey of over 2,000 manufacturing enterprises in Malaysia found that average incomes increased with firm size, except for the very biggest (World Bank, 1997).

4 For example, in Europe a 1993 EU Observatory Report presented evidence that gross wages are higher in larger enterprises in Greece, Ireland, Italy, Netherlands and Portugal; one exception was France (ENSR, 1993). Other reviews such as Storey’s (1994) and, for the USA, Brown et al. (1990); for West Germany, Wagner (1995); for Veneto, North East Italy (Crestanello, 1996); and for Canada (Baldwin 1998; cited in Cowling and Storey, 1998) confirm the aggregate picture of a tendency for wages to increase with enterprise size.

5 In respect of Ghana, van Dijk reported that a 1992 enterprise survey there found average earnings for all workers rising with the size of the firm, with large firms paying workers ‘significantly higher wages than micro firms (van Dijk, 1994).’ Also, a 1995 survey of eight countries in Latin America (Bolivia, Costa Rica, Ecuador, Honduras, Mexico, Panama, Peru and Venezuela) found that the average earnings of informal workers (composed of people working in micro-enterprises, the self-employed and people working as servants) was only half that of those employed in modern establishments, whilst average hours worked were longer (ILO, 1996).

As for non-wage conditions (ranging from the provision of pension, holiday entitlements, car allowances and sick pay, to areas like safety and health, working hours, equal opportunities and security of employment) again, the aggregate general picture is one of likely improvements with size. Studies have shown this to be true in respect of industrialised countries6 and non-industrialised countries7. More generally, small enterprises and self-employment is equated with the non-regulated informal sector, where instability and insecurity in particular is endemic (ILO 1997; van Ginneken, 1998, 1999). A comprehensive 1995 ILO survey of self-employed and small scale activities (employing less than ten persons), in the urban informal sector of Metro Manila, Philippines, found the sector ‘beset with problems of poverty, dismal working environments, child labour, and a lack of social protection’. Women, often working from home, appear to have been particularly affected, with home-workers risking their health in houses that tended to be cramped with poor lighting and ventilation (Joshi, 1997). As reported earlier, the informal sector in Metro Manila and elsewhere has been experiencing growth in recent years8.

6 Such was the finding of the 1990 ILO review mentioned above (Sengenberger et al., 1990), and the conclusion of other reviews, such as that of Storey’s (1994), and, for the UK service sector, that of Curran et al. (1993), and, for the USA, Brown et al. (1990), for Portugal (Cowling and Storey, 19986), and for West Germany, Wagner (1995). For example, in the USA, small firms are much less likely than their larger counterparts to offer health insurance benefits to their employees (McLaughlin et. al, 1995); whilst in the UK a recent survey has found that the rate of accidents at work is significantly higher in smaller businesses (Buckby, 1998a).

7 Comprehensive data is, as for incomes, again lacking, but the information available suggests that the aggregate picture is similar, if not even more pronounced, to that of industrialised countries. For example, Dombois (1993) has pointed out that in Colombia a range of fringe benefits, security and opportunities is generally inferior in smaller firms. Also, in the case of Brazil, ‘poor quality’ self-employment and employment without a labour card7, often in small businesses, is reported to have experienced rapid growth in the period 1987-1992. (Carneiro and Henley, 1998).

8 Indeed, 84 out of 100 new jobs created in Latin America over the period 1990-95 were said to be created in the informal sector (ILO, 1996). Countries like Venezuela, Panama, Paraguay, Bolivia, Honduras, Ecuador, and Costa Rica all saw the numbers employed in this sector increase between 5 percent and 8 percent per annum between 1990 and 1995, whilst other countries saw rises not much less (ILO, 1996).

2.2 The disaggregated picture

The aggregate picture describes tendencies for incomes and conditions to improve with enterprise size. However, a closer disaggregated inspection reveals important exceptions and variations. For example, a 1990 ILO study found that whilst the general picture in industrialised countries was indeed one of an improvements with size of firm, in some countries the differences associated with enterprise size were greater than in others. This indicates that there may be other influences at work than just size per se (Sengenberger et al., 1990). In this latter respect, some studies have highlighted the fact that sectoral affiliation can be an important factor. For example, Scott points out that in China research into working conditions has found much higher rates of lead poisoning in smaller enterprises in the lead sector, but much higher dust levels in larger enterprises in brick making and mining sectors (Scott, 1998: citing Liang et al., 1996 and Scott 1997). Also, in the UK, it has been found that small enterprises in some sectors may provide better incomes or conditions than similar sized enterprises in other sectors (See, for example, Curran et al., 1993).

Geographical location and context also appear to have some affect. Small or micro-enterprises in metalworking that are in a dynamic ‘industrial district’, such as in Northern Italy, are likely to be providing higher incomes than similar sized enterprises in the same sector in, say, a particular underdeveloped country of Africa or Asia. Other research has suggested that perhaps of more fundamental significance for a small enterprise’s propensity to provide better incomes and conditions could be a factor like the tendency for an enterprise to be innovative. The degree of participation in capacity raising collaborative inter-enterprise and enterprise-institution networks has also been identified as an important factor (Cosh and Hughes, 1996; cited in Pyke, 1997a). As has the extent to which small enterprises control key strategic aspects such as design and marketing, and the propensity to employ higher proportions of skilled labour (Crestanello, 1996). For example, in Brazil, Teixera (1998) found in a study of ten small enterprises employing 20 to 99 persons that the plant most likely to provide better quality employment was also using more sophisticated technology and skills. It was also the only unionised establishment.

2.3 Quality as a basis for competition

Despite an aggregate picture which shows widespread tendencies for incomes and qualitative aspects of employment to deteriorate as firm size drops, closer inspection shows that there are, in fact, major differences within the general category of ‘small enterprises’. It is clear that small enterprises as such need not necessarily providers of poor pay and inadequate conditions. There are a variety of reasons why small enterprises might offer better conditions than others, but it seems that a particularly significant factor could be the basis on which they compete.

This was borne out in the extensive survey of manufacturing enterprises carried out in Malaysia (World Bank, 1997), which found an association between higher incomes, rising firm size, and superior efficiency. The aggregate picture notwithstanding, it was also found that some small enterprises could be as efficient, or even more so than large enterprises. It was found that size in itself was not necessarily a limiting factor on higher efficiency and higher wages. Efficient enterprises in Malaysia tended to compete on a basis of emphasising and ensuring quality. They also were active in the acquisition of technology and know how through licensing, joint ventures and exports. They emphasised training and practiced human resource development policies that encouraged job stability and the acquisition of further skills (World Bank, 1997).

The evidence suggests that small enterprises that compete on lines similar to the efficient enterprises described in Malaysia are more likely to provide higher incomes and offer better working conditions than others. This is consistent with a conclusion of the recent ILO study of export processing zones, which found that quality conscious and innovative enterprises there ‘are invariably setting standards which are higher than national norms for wages, working conditions, health and safety and training (ILO, 1998)’.

Such findings have important implications for strategies to raise the levels of incomes and working conditions in small and micro-enterprises: On the one hand, it seems that the more efficient, innovative and quality conscious enterprises are more able to provide better incomes and conditions associated with quality employment. On the other hand, as the next chapter suggests the development of innovative, quality conscious, competitive enterprises may, in turn, be significantly influenced by a range of qualitative working and environmental factors.

There is the possibility, therefore, that enterprise competitiveness and qualitative aspects of employment could become mutually reinforcing. The challenge is to provide the right conditions to enable small and micro-enterprises, and indeed broader communities, to move towards such a goal along a path of constant improvement.