Small, Medium and Vulnerable
By Pierre-Alain Pionnier (Pierre-Alain.PIONNIER@oecd.org) and Gueram Sargsyan (Gueram.SARGSYAN@oecd.org), Statistics and Data Directorate (OECD)
SMEs are particularly at risk of failure from prolonged coronavirus (COVID-19) lockdown measures, and account for 75% of all jobs in directly affected sectors.
An increasing number of countries have begun to impose containment measures in order to curb the spread of COVID-19 infections and, in turn, introduce significant financial support packages to mitigate the impact on firms and people.
Many of the firms are Small and Medium Enterprises (SMEs) 1, which are particularly vulnerable to a prolonged lockdown. A 10 March survey by the business finance platform MarketFinance 2, before the UK introduced containment measures, revealed that two-thirds of SMEs in the UK were already reporting severe cash-flow problems and one-third claimed they were likely to fold within weeks without support.
Larger SMEs and microenterprises account for a significant share of overall business economic activity
Figure 1 provides a sense of scale of what prolonged shutdowns could mean for economic activity and, by extension, jobs. Microenterprises alone, where the impacts of lengthy shutdowns are likely to be felt first, account for close to 25% of all business economic activity in Italy.
Figure 1: Smaller firms are particularly vulnerable and account for significant share of activity
Value added share of microenterprises and larger SMEs in the non-financial business economy (%), 2017 or the latest available year
Source: OECD Structural Business Statistics database, OECD calculations.
The economic sectors most directly affected by lockdown measures represent 40% of total employment on average across OECD countries
This Statistical Insight follows up on previous OECD analysis of the impact of containment measures on economic output 3 and focuses on employment and SMEs. It zooms in on the same key activities flagged up in that earlier analysis, namely: transport manufacturing, construction, wholesale and retail trade, air transport, accommodation and food services, real estate, professional services, and other personal services (e.g. hairdressing). These sectors alone represent 40% of total employment on average across OECD countries (see Figure 2). The impact of a shutdown will of course vary by sector as some, for example food retail, continue to trade whilst many others, such as restaurants and cinemas, experience a complete halt in activity (see Spotlight on the real-estate and trade sectors below).
Figure 2: Employment in the sectors most adversely affected by lockdown measures is significant
% of total employment in the economy, 2018 or latest available year
Source: OECD Annual National Accounts database, OECD calculations. Note: Economic sectors are defined using the ISIC rev.4 classification: manufacturing of motor vehicles and other transport equipment (29-30); construction (41-43); wholesale/retail trade and repair of motor vehicles (45-47); air transport (51); accommodation and food service activities (55-56); real estate activities (68); professional, scientific and technical activities (69-75); arts, entertainment and recreation (90-93); and other service activities (94-96). The latter two are grouped together as other personal services in the Figure.
SMEs account for the bulk of employment in the most affected sectors
Although policy measures in many countries 4 (e.g. support to firms to retain staff) will help to mitigate the potential for job-losses (as opposed to economic activity where falls are inevitable in the short-term), a prolonged slowdown will increase the risks of closures, especially in the vulnerable population of SMEs. Figure 3 shows that SMEs account for the bulk of employment in the most affected sectors: 75% on average across OECD countries and nearly 90% in Greece and Italy. Microenterprises with less than 10 employees, probably the most at risk of cash shortages, account for around 30% of employment in these sectors, and up to 60% in Greece and Italy. 5
Figure 3: Smaller firms dominate in the most affected sectors
Share of total employment in the most adversely affected sectors by firm size (%), 2018 or latest available
Spotlight on the real-estate and trade sectors
Value-added generated by the real estate sector as recorded in the national accounts mainly reflects payments of actual and imputed rents (for owner-occupiers), and accounts for around 10% of value added across OECD countries. As such, the impact of containment measures is not expected to result in a significant drop in the sector’s contribution to GDP at least in the short to medium-term. These specific rental activities support a relatively small share of the total jobs in the sector. However, a large share of jobs in the sector (which accounts for around 1-2% of total jobs in the economy) are supported by commissions from housing sales. As such there is likely to be a disproportional impact (compared to the impact on value-added) on jobs in the sector with a prolonged slowdown, which is why the sector is included in this analysis despite the likely marginal impact on GDP.
Other sectors such as food wholesale and retail could be positively affected in the short term, partly reflecting stockpiling by households just before containment measures were enforce, but also reflecting substitution effects, as restaurants close. On average across OECD countries, the sector accounts for 1.5% of total employment (see Figure 4), the bulk of it accounted for by SMEs. Note that this is a conservative estimate because it only considers food retail in specialised stores.
Figure 4: Food wholesale and retail is likely to see growth in the short term
Share of total employment accounted for by wholesale and retail of food (%), 2018 or latest available year
Source: OECD Annual National Accounts and Structural Business Statistics databases, OECD calculations. Note: Food wholesale and retail corresponds to the following ISIC rev. 4 sectors: 462 (Wholesale of agricultural raw materials and live animals), 463 (Wholesale of food, beverages and tobacco) and 472 (Retail sale of food, beverages and tobacco in specialised stores).
The measure explained
Employment refers to employees and self-employed workers. Value added and employment shares, for all size classes of firms, are compiled based on 2017 or 2018 data, depending on data availability. Note that the structural business statistics do not always exhaustively capture very small units, such as the self-employed, and so, the numbers presented here for the contribution of microenterprises and SMEs should be viewed as lower bounds.
Where to find the underlying data?
- OECD Annual National Accounts: Value added and its components by activity, ISIC rev4 (Database)
- OECD Annual National Accounts: Labour input by activity, ISIC rev4 (Database)
- OECD Structural Business Statistics (ISIC Rev. 4), including breakdowns of value added and employment by firm size (Database)
- In line with usual practice, SMEs are defined in this note as firms with less than 250 employees and microenterprises as firms with less than 10 employees. Larger SMEs are those SMEs with 10 or more employees.↩
- See https://www.p2pfinancenews.co.uk/2020/03/11/two-thirds-of-smes-face-coronavirus-cashflow-crisis/.↩
- See https://read.oecd-ilibrary.org/view/?ref=126_126496-evgsi2gmqj&title=Evaluating_the_initial_impact_of_COVID-19_containment_measures_on_economic_activity. The present note considers the same economic sectors as in this previous analysis.↩
- For an overview of policy measures already taken by governments to support SMEs, see https://oecd.dam-broadcast.com/pm_7379_119_119680-di6h3qgi4x.pdf.↩
- Note that these ratios are calculated on the sectors for which allocation of employment by firm size is possible. In other words, they correspond to the relative size of the blue bars over the sum of the blue, orange and grey bars in Figure 3.↩