Small businesses cut their payrolls less sharply than medium or large firms during the economic downturn, but they have been slower to ramp up hiring again, according to a Scotiabank Global Economic Research Special Report.

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Small business payrolls expanded an average of 0.6% annually from 2002 to 2012, roughly half the increase at medium/large firms. Just over 46% of Canadian private sector employees worked for small businesses last year, compared with 48% a decade earlier.

The declining employment share of small business reflects in part the industrial mix of small business activities, and mirrors broad structural shifts in the Canadian economy.

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In particular, rising global commodity prices and resource demand have boosted the relative importance of mining and oil and gas activity, industries dominated by larger firms. Here, larger firms have strengthened their relative position, and now account for 80% of all employees in the sector, up from 73% a decade ago.

Small firms have also lost ground relative to larger firms across a wide range of industries, including important small business sectors such as construction and retail trade. The share of construction and retail workers employed by small firms fell 7 and 6 percentage points, respectively, from 2002-2012, to 72% and 43%. Industry consolidation, among other factors, is reinforcing the growth of large businesses.

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