Firm Dynamics: Employment Growth Rates of Small Versus Large Firms in Canada

Abstract

This paper examines whether Canadian firms of different sizes (in terms of employment) grow at different rates year-on-year. The data are from Statistics Canada’s Longitudinal Employment Analysis Program and cover the 1999-to-2008 period. The methodology is similar to that used by Haltiwanger, Jarmin and Miranda (2010) for the United States: controls are used for firm age, and possible bias from short-term regression to the mean is removed by sizing firms according to their average number of employees in both previous and current years.The analysis shows that employment growth rates across the Canadian business sector does not vary much between firms of different size classes, except for the smallest and youngest firms. Employment growth rates rise with firm size for firms with fewer than 20 employees, but for larger firms, no relationship emerges between employment growth and firm size. These results are consistent with the average proportionate growth condition of Gibrat’s Law — the assertion of French economist Robert Gibrat that average employment growth is independent of firm size.