Small businesses provide most jobs in under developed, developing nations: ILO

Policy makers need to focus on informal sector and small economic units to address fundamental challenges of employment creation and improvement of job quality

By Kundan Pandey
Published: Friday 11 October 2019

More than two-third of total employment in under-developed and developing countries is provided by small economic units, found the International Labour Organization’s latest report.

Policy makers must treat these units as a central part of economic and social development strategies worldwide, added Small Matters, the report released on October 10, 2019. It argued that such an approach is a must for low- and middle-income countries where the majority is employed in small economic units.

Three of United Nations’ Sustainable Development Goals (SDGs) depend on employment opportunities — eradicate poverty (SDG 1), full and productive employment and decent work for all (SDG 8) and reduce inequality (SDG 10).

The ILO used data from 99 countries to conclude that there’s a negative correlation between countries’ level of per capita GDP and employment share of the self-employed and micro and small enterprises.

This means that countries in lowest income level groups have almost 100 per cent self employment. “In these countries, hardly any employment occurs in firms with 50 or more employees,” read the report.

Self employment is the highest in South Asia (66 per cent) followed by sub-Saharan Africa (50 per cent) and the Middle East and North Africa (44 per cent), found the report. “Around 85 per cent of workers in India are self-employed or do casual work and 73 per cent of non-agricultural workers in Bangladesh were self-employed,” found the report.

Countries that have more people working in the service sector, have lower employment in the agriculture sector, according to the report. For example, Niger and Madagascar see agriculture provide 75 per cent employment and services only 15 per cent. On the other hand, in developed countries like Ireland, Netherlands and Denmark, hardly five per cent of total employment is in the agriculture sector, while 80 per cent is provided by services.

In the agriculture sector too, most of employment opportunities fall in the informal category.  Around 95 per cent of agricultural sector employment in South Asia and sub-Saharan Africa is informal, according to the report. 

But, the developed world is different. Europe and Central Asia have the largest share of agricultural employment in the formal sector, which is more than 30 per cent. In East Asia and the Pacific, it is more than 20 per cent, highlighted the report.

In sub-Saharan Africa and South Asia, self-employment alone accounts for more than half of the total agriculture employment.

The report also underlines an inversely proportional relationship between countries’ economies and the nature of employment opportunities.

The share of the self employed in low-income countries is almost five times the share in high-income countries, it added. “Similarly, the employment share of micro-enterprises (two-nine employees) is much higher in low- and lower-middle-income countries than in upper-middle- and high-income countries,” read the report.

But, the employment in small enterprises (10-49 employees) is more in high-income countries, it added. Employment share of small enterprises is just three per cent in low-income countries, while it goes up to 25 per cent in high-income countries. “The employment share of medium-sized and large enterprises increases with rising country income level,” according to the report.

The report argued that it is important to understand the nature of employment opportunities available in a country to facilitate and improve the quality.

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