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close this bookJob Quality and Small Enterprise Development - Working Paper No. 4 (ILO, 1999, 35 p.)
close this folder1.0 Introduction
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View the document1.1 Definition of job quality

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Following the adoption by the International Labour Conference (ILC) in 1998 of Recommendation 189 concerning General Conditions to Stimulate Job Creation in Small and Medium-Sized Enterprises, the ILO has a clear mandate to promote concepts and interventions aimed at creating more jobs within small enterprises. Contained within Recommendation 189 are various ILO Conventions and Recommendations as well as a number of principles concerning the quality of employment within small enterprises. These principles must be translated into concrete concepts, methodologies and tools the ILO can promote to effectively service the needs of its Constituents.

Over the last ten to 15 years small enterprises have increased in policy importance, particularly in respect of their capacity to provide jobs. In numerical terms, the significance of smaller firms as providers of employment is now well documented1. Not only have small enterprises become important sources of jobs, but also there have been indications that their proportionate significance could be growing2. Amongst the main reasons for this has been the inability of large-scale enterprises to absorb quickly enough populations growing in, and migrating to, urban areas in developing countries. There has also been a lessening of the economic significance of mass production and a greater importance put on flexibility and specialisation. These changes are reflected in the growth of a range of new non-standard employment practices, as well as a greater emphasis on out-sourcing and sub-contracting. The effects of new technological possibilities have allowed small enterprises to produce more economically and flexibly.

1 For example, in the developed countries of the European Union self-employed, family units and micro-enterprises. A recent ILO World Employment Report, 1997/8, provided estimates suggesting that the informal sector could be absorbing as much as 40 to 50 percent of the urban labour force in Asia (reaching 65 percent in countries like Bangladesh); 61 percent in Africa; and high levels in South America, reaching over fifty percent, for example, in Colombia. In transitional countries also the small firm sector has become significant. By 1995, in 11 countries of Central and Eastern Europe (Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuanian, Poland, Romania, Slovakia, and Slovenia) 91 percent of all enterprises could be classified as ‘very small’, employing a maximum of nine persons, accounting for 24 percent of total employment in the non-agricultural private sector, with those employing less than 50 people accounting for 43 percent (EU, 1999).

2 See ILO (1995) for example. Such was the suggestion in respect of developed countries, in a recent review by Cowling and Storey (1998) which found that small firms appear to have ‘increased their quantity of jobs and the proportion of employment.’ Also, there are indications of a similar trend in non-industrialised countries. For example, between 1990 and 1995 proportionate employment in small businesses and self-employment in Latin America increased from 45 percent to 49 percent. Micro-enterprises alone (employing less than 10 people) increased their proportion from 20 percent to 22.5 percent, whilst the proportion employed in large private firms declined from 33 percent to 31 percent (ILO, 1996). More generally, the 1997/8 ILO World Labour Report indicated a ‘steady growth of the informal sector in almost all developing countries, with the exception of the newly industrialising countries (ILO, 1997)’.

Where once small enterprises might have been seen as essentially peripheral economic actors compared to large enterprises - the ‘real’ engines of growth - now the small enterprise is more likely to be seen as playing a fundamental role in ‘the network economy’. This is especially so at the local and (sub-national) regional levels. Consequently, whether as competitors in their own right, or as crucial contributors to whole networks and supply chains of firms, small enterprises are now seen as important sources of both competitiveness and employment.

At the same time a general increase in importance for small enterprises has occurred, there have been important changes in the ways economies are organised and in the ways enterprises must operate if they are to compete under current conditions. These changes include the ways enterprises relate to one another in networks and supply chains. There have been changes to the organisation of labour and the management of stock and inventory. More broadly, there has been a move toward an environment of instability and change, increasingly at the levels not only of individual enterprises but networks of enterprises and local economies. These changes provide important contexts - imposing both limitations and possibilities - for actions to promote small enterprises and job quality.

Whilst small enterprises have greater significance for their strategic economic importance, particularly in terms of jobs, concerns have been raised about the quality of those jobs. Small enterprises have long been popularly associated with inferior pay and conditions. Especially when compared to larger enterprises that may benefit from both the advantages of scale and superior resources.

Moreover, in recent years, the growth in employment in small enterprises has been associated with a parallel trend of a growth in non-standard forms of informal and flexible employment relationships, which have the potential to reduce access to a range of economic and social entitlements, as well as increase insecurity. Small enterprises are less likely to be included within formal industrial relations and social protection schemes and are often also exempted from legal requirements to regulate employment and working conditions. In cases where they are included, these regulations might not be rigidly enforced3.

3 This point was strongly made, for example, in respect of the USA by Brown, et al., (1990). In respect of developing countries, the ILO World Labour Report 1997/8 found ‘many informal sector operators’ are said not to respect - or only to a limited extent - a variety of regulations, including those pertaining to occupational safety and health, working conditions, and social security (ILO, 1997).

It is important to ascertain to what extent small enterprises actually provide inferior incomes and working conditions. Perhaps even more important, it is necessary to identify the conditions under which such enterprises progressively improve, especially in the light of the changing economic context referred to above.