The slow development of SMES, night employment according to the ILO

It is necessary to encourage SMES to develop. This is the slogan launched by the international Labour Organization (ILO), which has recently published a report entitled “Employment and social issues in the world to 2017: Companies and sustainable jobs” . In this study, the economists of the international institution to encourage the States to conduct their economic policies favorable to SMES in order to stem the rise of unemployment in the world.

SMES are hardest to face the crisis

The crisis has been dismal on the sector of small and medium-sized enterprises. Prior to 2009, the average growth of employment ( full-time only) “was significantly higher” in SMES than in large enterprises, with a difference of 1.4 percentage points – 4.7% and 3.3%, respectively. But the growth of the permanent full-time employment in SMES has slowed in recent years. while the dynamics of the employment in young firms had a slowdown at the global level.

“During the period preceding the crisis, the rate of employment growth in young firms was on average 6.9 percentage points higher than that of established enterprises, but the gap narrowed to 5.5 percentage points after the crisis.”

In regards to the dynamics of employment, there are marked disparities between the levels of development of countries. “The capacity of SMES, compared to large companies, to generate growth of employment increases with income per capita”, underlines the ILO. In developing countries, the rate of job creation in SMES is similar to that of large firms, whereas it is higher in the emerging and developed economies. For the economists of the international organization, “this may reflect the fact that many SMES in developing countries, and to a lesser extent in the emerging countries, from necessity entrepreneurs, whose primary objective is to survive and not necessarily to develop.”

On the labour market, SMES account for 52% of total employment in developing economies, compared to 34% in emerging economies and 41% in the developed economies.

The weight of the informal economy

To try to explain this slowdown, the report identified several structural problems. “The environment in which businesses operate – in addition to the cyclical developments of recent has a significant impact on their growth.” The authors indicate that a series of factors specific to each country can have a significant impact on the development of firms :

“The institutions of the labour market, the organizational models, the access to trade and global supply chains, market size and the funding opportunities, influence the business growth.”

In some cases, these factors can have consequences on the informal economy. “A large number of companies, and by the absence of workers remain in the informal economy. […] This concerns, for example, a company’s ability to grow and create wealth and employment, which determines the access of workers to social protection.”

The other factor put forward by the ILO is the stagnation of world trade. The paper finds that 37% of workers (167 million people) were employed by export companies in the 132 countries surveyed in 2016, which is less than before the financial and economic crisis.

Facilitate the financing of young companies

Against this backdrop, the international labour Organization has made a few proposals.

“To reverse this recent trend with the stagnation of employment in SMES, we need policies to promote SMES and improve the business climate for all businesses, including access to financing for the youngest of them,” stresses Deborah Greenfield, deputy director-general for policies.

Access to finance remains one of the main problems that companies face, especially in developing countries. The difficulty stems in part from the fact that many companies do not ask for bank loans because of the cost that this can generate.

“The report finds that SMES and young firms make more use of these loans for the working capital fund when there are less imperfections on the financial markets.”

To facilitate the access to external financing or foreign, the organization recommends that to improve the institutional environment of States, “thanks to greater accountability, transparency of information and respect for the rule of law”. This may enable the firms to financially constrained to raise funds abroad, or to obtain loans more easily available.

Internal flexibility and training

On the regulation of labour, the report encourages companies to engage in internal flexibility rather than resort to temporary employment.

“In opting for the functional flexibility internally (e.g. training of workers), companies can maintain their global competitiveness without sacrificing the quality of the job. When they choose the numerical flexibility (external, for example by relying heavily on temporary workers), the gains are generally short lived and associated with negative long-term consequences for businesses and workers.”

To facilitate this internal flexibility, the experts encourage businesses to offer training to their employees. The facts found by the ILO indicate that, on average, the companies that offer formal training to their full-time employees offer wages 14% higher, which is 19,6% more productive and have unit costs of labor lower by 5.3% than those who do not provide training.

Innovation stimulates employment

Timer regular discussions on the possible liability of technologies in the destruction of jobs, the report notes that innovation is an important source of competitiveness and job creation for businesses. In general, innovative companies tend to be more productive and create more jobs, while doing work of people more qualified, in that it is more with training.

But the ILO grade, however, his remarks by recalling that “the innovation has led to a more frequent use of temporary employment contracts (in particular in firms that innovate in products and production processes)”. These have a tendency to have more than 75% of temporary workers additional than those that do not innovate.

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