Routledge Library Editions: Small Business, 17-Volume Set 9781138673083, 9781315542669, 9781138675667, 9781138676282, 9781315560205, 0415100356

Table of contents :
Cover
Volume1
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Notes on Contributors
Preface
1: Small Firms and Employment
2: Running to Stand Still: The Small Firm in the Labour Market
3: Employers' Work-Force Construction Policies in the Small Service Sector Enterprise
4: Labour Market Support and Guidance for the Small Business
5: Labour Intensive Practices in the Ethnic Minority Firm
6: Employment and Labour Process Changes in Manufacturing Smes During the 1980s
7: Employment in Small Firms: Are Cooperatives Different? Evidence from Southern Europe
8: Generating Enterprise and Employment in Disadvantaged Urban Areas
9: The Characteristics of the Self-employed: The Supply of Labour
Index
Volume2
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Contributors
Foreword
General Editor's Preface
1: Barriers to Growth: the Acard Study
2: Management Attitudes, Behaviour, and Abilities as Barriers to Growth
3: Lack of Finance as a Constraint on the Expansion of Innovatory Small Firms
4: Barriers to Growth: The Labour Market
5: The Importance of Technology Transfer
6: Large Purchasers
7: Small Firms' Merger Activity and Competition Policy
8: Barriers to Growth: The Effects of Market Structure
Index
Volume3
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Finance for Growing Enterprises Preface to the 2016 edition
1: Introduction
2: Market Fallures in the Provision of Finance and in Business Services for Small and Medium-Sized Enterprises
3: Bank Finance for Growing Small Businesses
4: Small Firms and Bank Borrowing in the UK: Issues and Evidence
5: The Role of Informal Venture Capital in Financing the Growing Firm
6: Third-Party Equity - The Role of the UK Venture-Capital Industry
7: The Stock Exchange and the Unlisted Securities Market
8: Characteristics of Small Firms Floated on the USM 1980-83: An Inter-Temporal Study
9: Debt Targeting and Banking Relationships in the Financial Behaviour of Newly Quoted Firms in the UK
10: Efficient Pricing of IPOs
11: Socks, Bubbles and Crashes: A Financial Analysis of the Sock Shop
12: Second-Tier Markets in Europe: New Markets for Growing Firms' Equities
13: The Development of Financial Strategy and Accountability Around Quotation
14: Conclusion
References
Index
Volume4
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Notes on the Contributors
Preface
1: The Location of Small and Medium Enterprises: Are There Urban-rural Differences?
2: Founding a New Business in the Countryside
3: Small Firm Creation, Innovation and Growth and the Urban-rural Shift
4: The Growth and Survival of Mature Manufacturing Smes in the 1980s: an Urban-rural Comparison
5: Spatial Variations in the Role of Equity Investment in the Financing of Smes
6: In Search of Spatial Differences: Evidence from a Study of Small Service Sector Enterprises
References and Notes
Index
Volume5
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Dedication
Table of Contents
List of Tables
List of Figures
Chapter I: Introduction
Scope of the Book
Academic Contributions
Concepts and Definitions
Chapter II: Review of the Literature
Industry Disequilibrium, Market Opportunity
and Entrepreneurship
Industry Dynamics
Organizational Inertia
Ecological Models of Organizational Foundings
Entry Barriers
Chapter Summary
Chapter III: Theoretical Development
Theoretical Development and Propositions
Development of Testable Hypotheses
Theoretical Summary
Chapter IV: Research Design and Methodology
Regression Model, Hypotheses, and Research Method
Sample Description
Data Sources
Variable Measures
Chapter Summary
Chapter V: Results
Descriptive Statistics
Bivariate Relationships
Regression Results
Validity of Regression Assumptions
Chapter Summary
Chapter VI: Discussion of Results, Limitations, and Future Research
Discussion of Results
Limitations
Implications for Future Research
Bibliography
Index
Volume6
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Abbreviations
List of Contributors
Preface
1: Small is Beautiful — The Regional Importance of Small-Scale Activities
Part One: The Regional Importance of Small and Medium-Sized Enterprises
2: Innovation, Entrepreneurship, and the Role of Small and Medium-Sized Industries: A Long-Term View
3: Innovation and Technology Strategy: Competitive New-Technology Firms and Industries
4: The Role of Innovative Small and Medium-Sized Enterprises and the Revival of Traditionally Industrial Regions
5: Business Formation and Regional Development: Some Major Issues
6: High Technology, Small Firms and Regional Economic Development: A Question of Balance?
7: The Regional Development Potential of Small and Medium-Sized Enterprises: A European Perspective
8: The Role of Small and Medium-Sized Enterprises in European Job Creation: Key Issues for Policy and Research
Part Two: Case Studies
9: The Role of Small and Medium-Sized Enterprises in Regional Development: Conclusions Drawn From Recent Surveys
10: The Role of Small and Medium-Sized Manufacturing Plants in Regional Employment — A Swedish Perspective
11: Regional Economic Potential in The Netherlands: Approaches in Empirical Research, with Special Reference to Small and Medium-Sized Firms
12: Innovative Behaviour, Location and Firm Size: The Case of the Dutch Manufacturing Industry
13: Small and Medium-Sized Enterprises and the Regional Distribution of Industry in Spain: A New Stage
14: Regional Dimensions of Small and Medium-Sized Enterprises in Greece
15: Trends in Migration and Characteristics of Entrepreneurs in the National Periphery of Israel
16: Rural Small-Scale Industry in Developing Countries: Indonesian Experiences
Index
Volume7
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Maps
List of Tables
List of Contributors
Preface
Note on the Acton Society
Introduction: the Political Economy of the Small Firm in Italy
1: The Role of Small Firms in the Development of Italian Manufacturing Industry
Appendix 1
Appendix 2
Appendix 3
2: Small Firms: Profile and Analysis, 1981–85
Appendix 4
3: A Model of the Small Firm in Italy
Appendix 5
4: Sectors And/or Districts: Some Remarks on the Conceptual Foundations of Industrial Economics
5: The Industrial District in Marshall
6: The Geography of Industrial Districts in Italy
Appendix 6
7: Small-Firm Development and Political Subcultures in Italy
8: Technical Change and the Industrial District: the Role of Inter-firm Relations in the Growth and Transformation of Ceramic Tile Production in Italy
9: The Small-Firm Economy’s Odd Man Out: The Case of Ravenna
10: Specialization Without Growth: Small Footwear Firms in Naples
Appendix 7
11: A Policy for Industrial Districts
Index
Volume8
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Preface
Chapter I: The Research Issue
Environmental Scanning
The Study
Summary
Chapter II: A Data Acquisition Model
Data Acquisition
The Model
The Response Model
Interpretation of a Strategic Issue
Response Uncertainty
Summary
Chapter III: Research Methodology
Sample
The Landscape Contracting Industry
Data Collection
Organization Size
Variable Operationalization
Analysis of Data
Summary
Chapter IV: Results
Descriptive Statistics
Test of Hypotheses
Multiple Regression Analysis
Summary
Chapter V: Discussion and Conclusions
Interpretation of Findings
Limitations of This Research
Contributions of This Research
Appendix A
Bibliography
Index
Volume9
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Preface
1: Introduction
2: Small and Medium-sized Establishments in Western Europe
3: New Firm Formation in the Netherlands
4: New Firms and High-technology Industry in the United Kingdom: The Case of Computer Electronics
5: The Location of New Firm Creation: The French Case
6: New Firms in the Local Economy: The Case of Belgium
7: New Firm Creation in Denmark: The Importance of the Cultural Background
8: The Nature of New Firms in Ireland: Empirical Evidene and Policy Implications
9: Small Firms and Industrial Districts: The Experience of Italy
10: Urban Dynamics and the New Firm: The Position of Amsterdam in the Northern Rimcity
11: The Regional Impact of Public Policy Towards Small Firms in the United Kingdom
12: The Economic Importance of Small and Medium-Sized Firms in the Federal Republic of Germany
13: Relevance and Nature of Small and Medium-Sized Firms in Southern Italy
14: Small Manufacturing Firms and Regional Development in Greece: Patterns and Changes
Index
Volume10
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Preface
Acknowledgements
List of Figures
List of Tables
1: Introduction
Synopsis
The Nature of Marketing
The Nature of the Small Enterprise
Marketing and the Small Enterprise
The Future
Case Study: Butterfingers
Case Study: David, Cakes of Distinction
Notes
Further Reading
2: Adopting a Marketing Orientation
Synopsis
Definition of Marketing
Identifying Customer Needs and Wants
Links with Other Functions of the Business
Defining the Business
Providing Future Direction
Building an Image
Marketing and the Selling Concept
The Cost Factor
Case Study: Donprint
Notes
Further Reading
3: Understanding the Marketing Environment
Synopsis
Impact of Competition
Understanding Customers
Technology
Suppliers, Resellers, and Distributors
Government, Public, and the Economy
Checklist
Case Study: Impact of House Prices
Case Study: Industrial Manufacturing and Marketing
Notes
Further Reading
4: Marketing Planning
Synopsis
Importance of a Formalized Approach
Forecasting Demand
Setting Marketing Objectives
Deciding on the Optimum Strategy
Benefits of Going for Market Share
Exercising Controls
Planning for the Longer Term
Checklist
Case Study: Merrydown Cider
Note
Further Reading
5: Products and Services
Synopsis
Concept of the Product Life Cycle (PLC)
New Product Development
Product Positioning
Estimating Demand and Profitability
Developing the Prototype
Alternative Sources of Development
Checklist
Case Study: Fire-Mann (Sales) Ltd
Case Study: Derwent Valley Foods
Notes
Further Reading
6: Pricing
Synopsis
Factors Affecting Price
New Product Pricing
Pricing Policy
Competitor- and Customer-oriented Pricing
Pricing and Product Differentiation
Pricing at the Going-rate
Checklist
Case Study: Linn Products
Note
Further Reading
7: Distribution
Synopsis
Problem Areas
Deciding on Distribution Channels
Evaluating Channels of Distribution
Checklist
Case Study: Strida Ltd
Note
Further Reading
8: Marketing Communications
Synopsis
Need for Effective Communication
Communication Objectives
Developing a Logical Approach
Thinking the Problem Through
Impact of Buyer Needs and Behaviour
Channels of Communication
Message Design and the Communicator
Communications Planning
Checklist
Case Study: W. Jordan (cereals)
Note
Further Reading
9: Overseas Marketing
Synopsis
The Overseas Marketing Decision
Sources of Information
Market Selection
MODe of Entry
Some Key Problem Areas
Capitalizing on Opportunity
Problems of Managing Documentation
Obtaining Practical Help and Advice
Contractual Arrangements
Case Study: Woods of Windsor
Case Study: Almo-Cut
Notes
Further Reading
10: Marketing to MOD
Synopsis
Problems of Marketing
Background
MOD Organization and Contact Points
Market Entry
Contracts Branch Administration
Principles and Types of Contract
Contract Conditions
Contract Financing
Quality Assurance
Annex 1: Ec and GATT
Annex 2: Contact Points
Case Study: Airship Industries
Notes
Further Reading
11: Franchising
Synopsis
Concept of Franchising
Franchising in the United Kingdom
Opportunities for the Potential Franchisee
Financing the Franchise
Points to Consider
Case Study: Olivers
Notes
Further Reading
12: Marketing High Technology
Synopsis
Importance of Company Image
Need for Customer Reassurance
Building an Acceptable Image
Developing a Marketing Framework
Case Study: Celltech
Notes
Further Reading
Index
Volume11
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Prologue
Introduction
1: Concentration, Competition and the Small Firm
2: An Analysis of Concentration
3: Economics and Small Enterprises
4: A New Model of the Process of Business Concentration
5: Company Finance in Europe - The Impact on Small Firms
6: Small Firms and the German Economic Miracle
7: The Small Firm in the French Economy
8: Small Business in Italy - The Submerged Economy
9: Public Policy and Small Firms in Britain
10: Small Business Research in Britain
Volume12
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Acknowledgments
Introduction
1: Constructing a Modern Myth
2: The Small Firm in Context - Theory
3: The Small Firm - Combined and Uneven Development
4: Case Studies
5: Not so Great Expectations
6: There is no Alternative - Trade Unionism and Small Firms
7: Summary and Conclusions
Appendix The Bolton Report
Bibliography
Index
Volume13
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Acknowledgements
Part One: The Small Firm
1: Introduction
2: The Small Firm
Part Two: New Firm Formation: The Theory
3: The New Firm: An Economic Perspective
4: New Firm Formation: Some Non-economic Approaches
Part Three: New Firm Formation: Some Empirical Results
5: A Survey of New Firms
6: The Personal Characteristics of New Firm Founders
7: Getting Started
8: Finance for the New Firm
9: Impact on the Local Economy
Part Four: Implications for Policy
10: New Firms: The Regional Perspective
11: Small Firms Policies: A Critique
References
Index
Volume14
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
Foreword
1: Introduction
Part One: The Small Company: Profits and Jobs
2: The Small Manufacturing Company: Employment and Financial Characteristics
3: The Small Company and Financial Reporting in Context
4: Size and Firm Performance: Size, Profit and Growth in Small and Large Companies
5: Public Policy: Profits, Jobs and Picking the Winners
Part Two: The Small Company: Failure Prediction
6: Univariate Ratio Analysis
7: Multiple Discriminant Analysis
8: Factor, Probit and Logit Analysis
9: Qualitative Information and the Prediction of Small Company Failure
10: Conclusion
Bibliography
Index
Volume15
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of figures and tables
List of authors
Preface
1: Background and Scope of the Text
2: The Economics of Small-Firm Performance, Growth and Internal Organization
3: Non-Economic Explanations of Firm Structure, Management and Performance
4: Small-Firm Performance and Managerial Labour Markets: a Framework for Empirical Analysis
5: Research Methods and Company Characteristics
6: The Labour Market for Managers
Appendix 6.1: Variables Extracted from Interview Data
7: Owners and Firm Size
Appendix 7.1: Entrepreneurial Characteristics
8: Ownership, Organization and The Financial Performance of Firms
Appendix 8.1: Correlation Matrix
9: Teams and Teamworking
10: Conclusions
Bibliography
Index
Volume16
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Tables
List of Contributors
Introduction
Part One
1: Introduction to Part One: Advanced Industrial Economies
2: The United States of America
3: Japan
4: The United Kingdom
5: Australia
6: Federal Republic of Germany
7: Sweden
Part Two
8: Introduction to Part Two: Newly-Developed and Less-Developed Areas
9: South East Asia
10: Africa
Index
Volume17
Cover
Half Title
Title Page
Copyright Page
Original Title Page
Original Copyright Page
Table of Contents
List of Figures
List of Tables
Preface
ESRC Initiative – Definitions and Sample Size
Participants in ESRC Small Business Programme
1: Introduction
Why do Long-Term Research on Small Firms?
Structure of the Book
2: Small Firms: Definitions, Descriptions and Patterns
Introduction
Definitions
How many Small Firms are there in the United Kingdom?
International Comparisons
Changes in the Importance of Small Firms Over Time
Why these Changes?
The Quantitative Studies of Changing Importance of Self-Employment
Conclusions
3: The Birth of Firms
Introduction
Births Data
The Theory of New Firm Births
Explaining Spatial Variations in Rates of New Firm Formation
Explaining Temporal Variations in Rates of New Firm Formation
Conclusions
4: The Deaths of Small Firms
Introduction
Data
Some Theoretical Issues
A Review of Failure Rates
Why do Some Small Businesses Fail?
Which Small Businesses Fail and Which Ones Will Survive?
Conclusions
Appendix: UK Business Failure Statistics
5: The Growth of Small Firms
Introduction
The Significance of Growth Businesses
The Wish to Grow
Towards a Theoretical Framework
The Empirical Evidence
Barriers to Growth
Mature Small Firms
Conclusions
6: Employment
Introduction
The Quantity of Jobs in Smaller Firms
Types of Job
The quality of Jobs
Interaction with the Labour Market
Conclusions
7: Finance
Introduction
The Theory of Bank Lending in the Small Business Sector
The Bank's Response
Implications for the Market-Place
The Factual Background
Is there Competition in the Provision of Loan Capital?
Gaps, Market Failure and Credit Rationing
Two 'Special' Cases?
Conclusions
8: Public Policy
Introduction
Why have Public Policy?
The Objectives and Targets of Small Firms Policy
SME Policies in the United Kingdom
SME Public Policies in the European Community
Conclusions
9: Conclusions
Overview
Some Lessons for the Small Firm Community
Implications for Financial Institutions
Implications for Government
Notes
References
Index

Citation preview

ROUTLEDGE LIBRARY EDITIONS: SMALL BUSINESS

Volume 1

EMPLOYMENT, THE SMALL FIRM AND THE LABOUR MARKET

EMPLOYMENT, THE SMALL FIRM AND THE LABOUR MARKET

Edited by JOHN ATKINSON AND DAVID J. STOREY

First published in 1994 by Routledge This edition first published in 2016 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 1994 John Atkinson and David J. Storey All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: ISBN: ISBN: ISBN: ISBN:

978-1-138-67308-3 978-1-315-54266-9 978-1-138-67566-7 978-1-138-67628-2 978-1-315-56020-5

(Set) (Set) (ebk) (Volume 1) (hbk) (Volume 1) (pbk) (Volume 1) (ebk)

Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

Employment, the small frrm and the labour market

Editedby

John Atkinson and David Storey

London and New York

First published 1994 by Routledge II New Fetter Lane, London EC4P 4EE Simultaneouslypublishedin the USA and Canada by Routledge 29 West 35th Street,New York, NY 10001 ©

1994 John Atkinson and David Storey

Typesetin Times by Witwell Ltd, Southport Printed and bound in Great Britain by Biddies Ltd, Guildford and King's Lynn All rights reserved.No part of this book may be reprinted or reproducedor utilized in any form or by any electronic, mechancial,or other means,now known or hereafter invented, including photocopyingand recording, or in any information storageor retrieval system,without permissionin writing from the publishers. British Library Cataloguingin Publication Data A cataloguerecord for this book is availablefrom the British Library ISBN 0-415-10035-6 Library of CongressCataloging in Publication Data has been appliedfor.

Contents

List offigures List of tables Notes on contributors Preface

Vll

ix XlV XV

1 Small firms and employment John Atkinsonand David Storey

28

2 Running to standstill: the small firm in the labour market John Atkinsonand Nigel Meager

28

3 Employers'work-force constructionpolicies in the small servicesectorenterprise John Kitching

103

4 Labour market supportand guidancefor the small business 147 John Atkinson 5 Labour intensivepracticesin the ethnic minority firm Trevor Jones, David McEvoy and Giles Barrett

172

6 Employmentand labour processchangesin manufacturing SMEs during the 1980s David North, David Smallboneand Roger Leigh

206

7 Employmentin small firms: are cooperativesdifferent? Evidencefrom southernEurope Will Bartlett

256

8 Generatingenterpriseand employmentin disadvantaged urban areas Alan McGregor and Ruth Fletcher

288

vi

Contents

9 The characteristicsof the self-employed:the supply of labour 317 Hedley Reesand Anup Shah Index

328

Figures

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 6.1

Characteristicsof firm Environmentalcharacteristics Recruitmentactivity in past year by size (n=2,983) Firms experiencingrecruitmentdifficulty (recruiters only) Recruitmentand incidenceof labour problems by size Serious recruitmentdifficulties by size ALBSU survey data (n=l2,000) Incidenceof shortfalls in experienceby size Incidenceof shortfalls in skill/qualifications by size Shortfalls in number of applicantsby size Type of problems perceivedas very important by size (n=2,983) Managerialstructure by firm size Dynamics of recruitmentin the small business Necessityfor changesto employees'tasks and ability to secureit Training methodsand skill acquisition in large and small businesses Environmentalcharacteristics Use of external agenciesfor advice and support with employmentissues Use of public employmentagenciesby size Use of public sector and public agencies Use of existing professionalservices Use of private commercialagenciesby size Use of formal businessnetworks by size Use of informal businessnetworks by size A summaryof employmentchangein the panel of London SMEs over the 1979-90 period

35 37 40 41 42 45 46 47 48 50 63 76 82 87 150 157 162 162 163 164 164 165 213

vm

Figures

9.I

Comparable hoursand wagesof employedand selfemployed The year dummies

9.2

323 325

Tables

1.1 Net job generationin the UK 1985-9 2.1 Who decideson overall employmentlevels in the

2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15

organization(six labour markets,all sectors) Who decideson overall employmentlevels in the organizationby labour market (all sectors) Employmentdecision-makingby size of firm and labour market (all sectors) Employmentdecision-makingby sector(six labour markets) Factorsregardedas very importantin deciding on employmentlevels (six labour markets,all sectors) Factorsinfluencing employmentdecisionby size of firm (six labour markets,all sectors) Factorsvery important in employmentdecisionby size of firm (six labour markets,all sectors) Managerialdivision of labour by firm size (whole sample) Managerialdivision of labour by labour market area(whole sample) Multiple regressionestimates(dependentvariable: number of distinct managerialposts) Recruitmentmethods:managersand professionalstaff (six labour markets,all sectors) Recruitmentmethods:technical,craftsmen,skilled, etc. (six labour markets,all sectors) Recruitmentmethods:clerical, admin., secretarial,sales,etc. (six labour markets,all sectors) Recruitmentmethods:semi-and unskilled manualstaff (six labour markets,all sectors) Incidenceof recruitmentdifficulties by concentrationof recruitment(six labour markets,all sectors)

5 52 53 53 54 55 57 58 61 65 67 70 71 72

73 74

X

Tables

2.16 Recruitmentdistanceby occupationand firm size (six labour markets,all sectors) 2.17 Sourcesof competitionfor labour (six labour markets,all sectors) 2.18 Sourcesof competitionfor labour by firm size (six labour markets,all sectors) 2.19 Use of selectionmethods,by businesssize 2.20 Factorsinfluencing provision of training 2.21 Factorsconstrainingprovision of training 2.22 Logit estimates,Model I (dependentvariable: whether experiencedrecruitmentdifficulties in last year) 2.23 Logit estimates,Model 2 (dependentvariable: whether experiencedrecruitmentdifficulties in last year) 2.24 Logit estimates,Model 3 (dependentvariable: recruitment of adequatenumberof staff currently an important/very important problem) 2.25 Logit estimates,Model 4 (dependentvariable: recruitment of adequatequality of staff currently an important/very important problem) 3.1 Samplefirms by sectorand locality 3.2 Employers'selectioncriteria 3.3 Employers'selectioncriteria (groupeddata) 3.4 Employers'selectioncriteria by sector(per cent) 3.5 Size of firm by sector(per cent) 3.6 Aggregatework-force compositionof samplefirms 3.7 Employmentmix by sector(per cent) 3.8 Employers'use of part-time workers by sector 3.9 Part-timeworkers as a proportion of total work-force (per cent) 3.10 Employers'reasonsfor using part-time workers 3.11 Employers'reporteduse of self-employedand freelance workers by sector(per cent) 3.12 Proportionof employerswho ever use temporaryworkers by sector(per cent) 3.13 Employers'reasonsfor using temporaryworkers (per cent) 3.14 Genderdistribution of aggregateemploymentby sector(per cent) 3.15 Owner-mangers'reportedgenderpreferencesby sector 4.1 Use of externaladvicesourcesfor employmentissues,by firm size 4.2 Use of externaladvice sourcesfor employmentissues,by age of firm

75 76 78 79 84 88 91 93 95 96 109 110 114 116

122 124 125 125 126 127 130 132 133 136 137 154 155

Tables

4.3 4.4 4.5 5.1 5.2 5.3 5.4 5.5 5.6a 5.6b 5.7a 5.7b 5.8 5.9 5.10 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11

Use of external advice sourcesby incidenceof employmentproblems(six labour markets,all sectors) Sourcesof employmentassistance/advice by age of firm (six labour markets,all sectors) Index of usefulness The selectedstudy areas Owners'weekly hours by origin Short versuslong hours: Asian owners Working and opening hours of Asian and white retailers Concentrationof Asian firms in food retailing and CTN Asian owners'weekly hours and satisfactionwith returns White owners'weekly hours and satisfactionwith returns Employmentsize classes:percentageof firms with full-time employees Employmentsize classes:percentageof firms with full-time employeesby businessactivity Employeesand satisfactionwith returns: Asian firms Recruitmentand family/co-ethnic employees Firms using formal recruitmentprocedures(per cent in each size category) Sectoraldistribution of the London, OMA and rural panels Employmentloss resulting from non-survival in the London panel Employmentchange1979-90in surviving firms by sector for combinedpanel Employmentchangeby age of firm for the combined panel Employmentchange1979-90 by sectorfor the SMEs in the three panels Movement of firms betweenemploymentsize groups 1979-90for combinedpanel Employmentchange1979-90by size of firm in 1979 Shareof job gains/lossestaken by firms making the largest changesin each sectorfor the combined panel Employmentchange1979-90 by growth performance groupsfor the combinedpanel Changein the proportion of manual (direct production) workers in the work-force 1979-90by sector in the London panel Changein the proportion of women in the work-force 1979-90 by sectorin the London panel

XI

155 166 168 175 180 183 184 186 189 189 196 196 197 199 200 211 214 216 217 218 219 219 221 222 225 226

Xll

Tables

6.12 Changein the proportion of part-time employeesin the work-force 1979-90 by sectorfor the London panel 6.13 Changein the proportion of skilled productionworkers in the work-force 1979-90 by sectorfor the London panel 6.14 Level of job demarcationand labour flexibility in 1990 by sectorfor the combinedpanel 6.15 Reasonsfor externalizingproductiongiven by the SMEs which engagedin subcontractingin 1990 6.16 The growth performance1979-90of firms increasing their labour flexibility 7.1 Cooperativesin Emilia Romagna1989 7.2 Size distribution of all industrial firms and cooperatives in Emilia Romagna(per cent) 7.3 Size distribution of cooperativesin Catalonia 7.4 Comparisonsof means:Italy 7.5 Comparisonsof means:Spain 7.6 Regressionresultsfor Italy 7.7 Regressionresultsfor Spain 7.8 Differencesin training activity 7.9 Linkages to local markets 8.1 New or existing firms in workspaces 8.2 Previouslocation of firms trading before moving into workspaces 8.3 Industrial classificationof community enterprisesand workspacetenants 8.4 Characteristicsof owners of workspacefirms 8.5 Characteristicsof employeesof workspacetenantsand community enterprises 8.6 Residenceand previous employmentstatusof employees 8.7 Local recruitmentby gender 8.8 Local recruitmentby occupation 8.9 Previousemploymentstatusby occupation 8.10 Local recruitmentby new start/relocation 8.11 Local recruitmentby year of arrival in workspace 8.12 Local recruitmentby residenceof owners 8.13 Local recruitmentby previous statusof owners 8.14 Previousemploymentstatusof employeeby previous statusof owner 8.15 Local recruitmentby workspaceownership 8.16 Financial inputs to community enterprisesand workspaces1982-9 ( 1989 prices, £000s) 8.17 Job creationimpacts: employmentlevels at interview

227 233 236 240 248 261 262 263 272 272 275 277 279 280 296 297 298 299 302 303 304 305 305 306 307 307 308 309 311 311 311

Tables xm 8.18 8.19 9.1 9.2 9.3 9.4

Public sectorcosts per job (1989 prices) Anticipated break-evendates Age grouping by year Variable definitions and means Labour supply equations Changein work supply

312 313 320 321 322 324

Contributors

John Atkinson is Associate Director of the Institute of Manpower Studies,University of Sussex. Giles Barrett is part-timeLecturerand ResearchStudentat the Schoolof Social Science,John Moores University, Liverpool. Will Bartlett is ResearchFellow at the School for Advanced Urban Studiesand Centrefor MediterraneanStudiesin Bristol. Ruth Fletcher was ResearchOfficer at the Training and Employment ResearchUnit, University of Glasgow. She is now Development Officer at Community BusinessFife Ltd. Trevor Jones is Readerin Social Geographyat the School of Social Science,John Moores University, Liverpool. John Kitching is ResearchOfficer at the Small Business Research Centre, Kingston BusinessSchool, Kingston University. Roger Leigh is Reader in Economic Geography at the Centre for Enterprise and Economic Development Research, Middlesex University. David McEvoy is Professorof Urban Geographyand Director of the School of Social Science,at John Moores University, Liverpool. Alan McGregor is Professorof Housing and Urban Studies at the Training and EmploymentResearchUnit, University of Glasgow. Nigel Meager is AssociateDirector of the Institute of ManpowerStudies, University of Sussex. David North is Readerin Local Economicsat the Centrefor Enterprise and Economic DevelopmentResearch,Middlesex University. Hedley Rees is Senior Lecturer in Economics at the Departmentof Economics,University of Bristol. Anup Shah is Lecturer in Economicsat the Departmentof Economics, University of Newcastle. David Smallbone is Head of the Centre for Enterpriseand Economic DevelopmentResearch,Middlesex University. David Storey is Director of the SME Centre at Warwick Business School, U nivers.ity of Warwick.

Preface

This volume reportsthe resultsof researchsupportedby the Economic and Social ResearchCouncil's Small BusinessResearchProgramme. Additional supportfor the programmehas beenprovided by Barclays Bank, the Commission of the EuropeanCommunities(DG XXIII), the Departmentof Trade and Industry and the Rural Development Commission.This support is gratefully acknowledged,although the views expresseddo not necessarilyreflect those of the sponsoring organizations. At a personal level, the research has benefited from the active participation of the co-sponsors,notably John Martin from Barclays Bank, Martin Harveyfrom the Commissionof the EuropeanCommunities, Keith Lievesley from the Rural DevelopmentCommission,and Cliff Baker from the Departmentof Trade and Industry.

David Storey SME Centre University of Warwick

1

Small firms and employment John Atkinsonand David Storey

INTRODUCTION In 1978 the thirteenth Report from the Expenditure Committee Peopleand Work, Prospectsfor Jobsand Training arguedthat 'if each small businesscould take on one more employee,the unemployment problem would be solved'. Although it went on to recognizethat this was an overly simplistic view of the operation of labour markets,it arguedthat 'a whole rangeof legislationexistedwhich preventedsmall businessmen from taking on additionalpersonnel'.The clear inference was that if this legislationwere removed,employmentwould grow and unemploymentwould fall. Shortly after this, in 1979, the work of David Birch in the USA was extensivelypublicized by a newly electedUK Conservativeadministration. Birch (1979) purported to show that small firms, defined as those with less than twenty workers, provided a disproportionately high share of new jobs in the USA. Again, the inferencedrawn was that small firms were an appropriate focus of public policies for employmentcreation. There can be little doubt that the emphasisupon the small firm in governmentpolicy, most notably through an attempt to create an 'enterprise culture' (Burrows 1991), drew its impetus from the perceivedrole of small firms in creating employment.1 There was a clearview that governmentcould havea role to play in enablingsmall businessesto start up and expand. In particular, much of the mid1980ssawan emphasisby the UK governmenton attemptingto reduce the Burdens on Business(HMSO 1985) which its own legislation imposed,the effects of which were argued to fall disproportionately upon small firms. The view was widely held (Westrip 1982) that a relaxationof the legislativeconstraintsupon small firms would enable

2 Employment,the smallfirm and the labour market them to take on the extra worker identified by the 1978 Expenditure Committee,and so reduce or eliminate unemployment.2 For much of the 1980s, researchersinterestedin the relationship between small firms and employment concentratedon four main issues. The first was to attempt to quantify the extent of the job creationprovided by small firms. It focuseduponthe findings of Birch in the USA and the extent to which he was correct in drawing 'legitimate'inferencesfrom the data. In the UK and in other European countries,efforts were madeto replicatethe Birch methodologyto see whether similar results were obtained. This we may categorize as researchon the total numberof jobs, or job quantities.It focusedupon the inferenceswhich may be made from very large, yet incomplete, data bases;on the appropriateness of samplingtechniques;the extent to which theseresultsvary accordingto the stateof the businesscycle; and how employmentchangeover time can be 'decomposed'into its componentparts,suchas births, deaths,and in situ change.Finally, it examinesthe extent to which employmentchangewithin the small firm sectorcan be influenced by public policy. The secondemployment-relatedissue for researchersinterestedin small firms was the quality, as opposedto the quantity, of jobs in small firms. However,during the 1980sthe emphasisgiven to this elementof the research agenda was much less than that upon counting the number of jobs. Even so, a group of researcherscontinued to be interestedin the natureof industrial relations withinsmall firms, trade union membership,the availability of training for membersof the work force, wage rates and non-wage benefits to the work force, implementationof employmentlegislation, job duration tenure,job satisfaction,etc. It has to be said that this type of researchwas clearly flying in the face of governmentinitiatives to promotethe small firm sector.As observedabove,for much of the 1980sgovernmentsaw its role as being to liberate the small firm sector from trade union membership,legislationinvolving workers'safety,workers'rights, etc. In so doing, it believedmorejobs would be createdand unemployment lowered. There was thereforelittle interestby public policy-makersin researchon thesequestions,since policy was non-negotiable. A third major topic of interestto small firm researchersconcerned with employmentissues was the spectaculargrowth in self-employment. In June 1979, 1.9 million people were classified as selfemployed,with this constituting7.5 per cent of the UK work force. By June 1990, 3.3 million people were classified as being self-employed, with this constituting 12.2 per cent of the work-force in employment (Campbell and Daly 1991).

Smallfirms and employment 3 By the late 1980s and early 1990sthe researchagendaon employment in small firms had begun to shift somewhat.More researchers beganto considerhow the small firm interactedwith its local labour market. For much of the 1980sthe implied assumptionof policy had been that if constraintsupon the small firms were lifted, this would lead to job creation and reduced unemployment.By the end of the period, however, researchersbegan to look at this issue from a fundamentally different perspective.They began to ask about the extent to which small firms were influenced by the labour market in which they operated, rather than assuming that small firms, as a group, had the ability to influencethe characterof that labourmarket. Researchersbegan to have an interest in how small firms acquired their labour, how they developed managers,how they were constrained by the labour market and, in turn, how this influenced the performanceof the firm. Insteadof examiningthe impact which small firms had upon the labour market, the reversequestionalso beganto be addressed.Researchersbeganto recognizethe complexitiesof the interactionbetweensmall firms and the labour market.This we regard as the fourth main issue. In categorizingresearchdevelopmentsin this very generalmanner, we do not intend to imply that researcherswere unawareof the clear differenceswhich exist betweendifferent 'types'of small firms. These differences of type have many dimensions. For instance, there are many different definitions of a small firm (Cross 1983; Dunne and Hughes1990). The EuropeanCommunitydefinition of an SME, with less than 500 workers, is clearly different from the European Community definition of a craft firm which had less than ten employees, yet both are included within the interest group for Directorate General (DG23) of the European Community. Some suchas Curraneta/. (1991) are reluctantto useany leadingresearchers single definition of a small firm which applies across industry or service sectors. They prefer to use a 'groundeddefinition' in which those within the sector are asked for their definition of what constitutes'small'. Henceemploymentor financial criteria for a small firm in the petrochemicalsor oils sector would be orders of magnitude larger than that for the small firm in retailing. Researchersalso became aware there were major differences amongstsmall firms' performanceaccording to the age of the firm (Evans 1987) and, to a lesser extent, according to its ownership (Varyam and Kraybill 1992). For example,the 1980ssaw a growth in the numberof businessfranchiseson a major scale(Stanworth1988), together with the developmentof community enterprises(Buchanan

4

Employment,the smallfirm and the labour market

1986; Jacobs1986), and cooperatives(Cornforth 1983). The notion that the small firm sectorwas a homogeneousentity, suffering similar problems and experiencingsimilar opportunities, is fundamentally misguided. The purposeof the essaysin this volume is to provide an authoritative examinationof issuesrelating to employmentin small businesses.Each relates,at least partially, to the four themeswhich have been outlined above. Our purpose in this overview is to provide a context for thesepapers.To do this we provide a brief review of the researchin the four key areaswhich we havealreadyreferredto above, and then link it to the new empirical material produced in the contributing essays.

HOW MANY JOBS? Any discussionof this question has to begin with the seminal work by David Birch in the USA (Birch 1979). His work was interpretedas demonstratingthat two-thirds of the increasein employmentin the USA between 1969 and 1976 was in firms with less than twenty workers. As was pointed out in Storey and Johnson(1987), any work as influential as that of Birch will inevitably be the subjectof intense scrutiny. Looking back over the last decadeor so since Birch's work first appeared,it is clear that, despitethe major questionsraised by the critics, it continues to be used by policy-makersas the seminal researchwhich demonstratesthe importance of small firms to job creation. Indeed,it seemsthat the more successfulthe critics were in undermining the methodology and the inferences,the greater was Birch's credibility amongstinfluential groups of politicians. The criticisms of Birch were first levelled by Armington and Odie ( 1982) who, using an identical data set, were unable to replicate the findings of Birch. This was essentiallybecausethe Dun & Bradstreet data used by Birch is incomplete in the sensethat there are many missing establishments.Hence assumptionshave to be made about establishmentswhich are in the databasebut which shouldnot be, and thosewhich are not in the data basebut which should be. The nature of theseassumptionsfundamentallyaffectsthe numbersof jobs which can be attributed to small firms, primarily becausecoverageof the small firms sectoris very much weakerthan it is for larger firms. In more recenttimes Brown, Hamilton and Medoff (1990) have returned to the attack on Birch's results:

Smallfirms and employment 5 We have seenthat small employersdo not createa strikingly high shareof jobs in the economy,especiallyif we count only jobs that are not short-lived. Most jobs are generatedby new firms, which happento be small; existingsmall firms haverelatively high chances of failing, and when this failure rate is taken into accountthey do not grow faster than larger firms. Indeed,in recentyearsthey have shrunkfaster than large firms. The shareof employmentaccounted for by small firms has been remarkablyconstant. Table 1.1 Net job generationin the UK 1985-9 Firm size No. of employees

1987-9

1985-7

l-4 5-9 10-19 20-49 50-99 100-499 500-999 1,000+ Total

+29 +II +5 +6 +7 +6 +10 +3 +8

Not available +8

}

-5 +5 +2 +7 -2 +2

Sources: Gallagher, Daly and Thomason (1990); Daly, Campbell, Robson and Gallagher(1991). Note: The table shows the changein employment(births minus deathsplus in situ change)for each size group expressedas a percentageof employmentin that size group in the baseyear.

In the United Kingdom a similar debate has taken place. United Kingdom Dun & Bradstreetfiles were analysed(Gallagherand Stewart 1986) alongsimilar lines to that which Birch employedin the USA. In a string of publicationsover a numberof years,Gallagherand a number of other colleagues (Doyle and Gallagher 1987; Daly, Campbell, Robsonand Gallagher1991) have purportedto show that small firms havebeena major sourceof job creationin the UK. Table I. I illustrates thesefindings for the most recenttime periodsof I985-9. The resultsproducedby Gallagherand his colleagueshave beenthe subject of similar criticism to that levelled at Birch. In essence,the incompletecoverageof smallerfirms in the UK Dun & Bradstreetdata basemeansthat the data on firms in the data basehas to be scaled upwards to take into account these missing firms. The argument presentedby Storey and Johnson(1986) is that the firms included by

6 Employment,the smallfirm and the labour market Dun & Bradstreetare not a randomsampleof firms in the UK. They are more likely to include firms which are growing, since Dun & Bradstreetis a credit-rating agencywhich is therefore more likely to include growing, and hencecredit-seeking,firms. To scaleup without adequatelytaking this into account leads to an over-estimationof employmentcreatedin small firms. Storey and Johnson(ibid.) also questionedthe extent to which the data base had been adequately 'cleaned'to remove errors and mistakes. The more recentstudies,such as those by Daly, Campbell,Robson and Gallagher( 1991), showthat substantialwork hasbeenundertaken in 'cleaning'the database.However,the scaling-upproblemstill seems to remain, and a genuine difference of opinion does exist between Gallagherand his critics on the importanceof this issue. In addition to the Storey and Johnson(1986) critique, criticisms of Dun & Bradstreetdata basehave also been levelled by Hart ( 1987). Hart argues that the Dun & Bradstreet data base looks to be fundamentally flawed becausethe death rates of firms appear to increasewith firm size. He concludes:'The Dun & Bradstreetdataare insufficiently reliable to draw any firm conclusionsabout the death rates of large and small firms' (Hart ibid.). Peter Johnson ( 1989) has also looked at employment change accordingto size, but only for UK manufacturingestablishments.He shows that, whilst there has been an increasein the percentageof employmentin establishmentswith under 200 workers, a substantial proportion of this is becauseof former large firms which have contractedin size. The increasein importanceof small establishments may thereforereflect the declinein large firms, ratherthan the growth of small firms. Nor is it only the contractionof large businesseswhich has promotedthis effect. The 1980s were also a period of increasing decentralizationamong larger businesses.It may be that in part this was a result of widespreadacceptanceof the supposedlysuperior efficiency and responsiveness to the market of smaller organizations; nevertheless,it provided a further stimulus to the contractionof the averagesize of business.Although, in years to come, the notion of larger enterprisestrying to transmutethemselvesinto smaller onesin searchof their lost dynamismwill probablyappearquite ludicrous,we should not underestimatethe power of fashion in moulding corporate decision-making; the shift to smaller, devolved, decentralizedand increasinglyautonomousprofit centreswithin the large corporationis likely to continue, and with it the increasing prominenceof small units.

Smallfirms and employment 7 Overall, our view of this debateis that, during the 1980sin the UK, the averagesize of both establishmentand enterprisefell. It also seems likely that the decadesaw a significantincreasein the ratesof new firm formation. Also, it is the case that particularly during the 1986-9 period when the UK economywas booming,small firms were growing disproportionatelyrapidly. Thus Daly et a/. (1991) claim that firms employing fewer than ten peoplecreatedhalf a million jobs between 1987 and 1989. They show this is almost half of the total net job growth, even though firms in this size group containedless than onefifth of total employment. We remain unpersuadedof the precise magnitudeof this contribution to job creation,but recognizethat the 1980s was a period when averageenterprisesize was shrinking and that small firms were an important sourceof new job creation. Two final observationsare important at this point. The first is that madeby Brown, Hamilton and Medoff ( 1990). They arguethat evenif it is demonstrated(and they do not acceptthat it is), that small firms are a major sourceof new job creationin the United States,this is not sufficient to justify that public policy on employmentcreationshould be focused upon small firms. Quite correctly, they argue it has to be demonstratedthat the marginal public pound/dollar usedfor employment creation has to be shown to have bigger impact when directed towardsthe small firm sectorthanelsewhere.To their knowledge,and also to ours, no research in either the UK or the USA has yet demonstratedthat, at the margin, public money is more effectively focused upon small firms than elsewhere. The second issue concerns whether, amongst small firms, the performanceof the group is significantly influencedby only a few fast growers.Storey and Johnson(1986) in their critique of Gallagherand Stewart(1986) arguedthat the latter's results were highly sensitiveto the inclusion of a few firms. In their articles in EmploymentGazette, Daly et a/. ( 1991) did not accept this. According to them, job generationdatadid not indicate that a disproportionateinfluence was being exercisedby a few rapidly growing firms. However, Gallagher and Miller ( 1991) appearelsewhereto haveconcededto the Storeyand Johnsonargument.They conclude: 'It is the high flying firms which create the jobs. The remarkableeffect of a modest number of highflying firms on employmentturnover has been very clearly shown.' In a comparisionof Scotland with south-eastEngland they show that firms which they describeas 'flyers' made up 18 per cent of all firms in the survey, but contributed 92 per cent to the jobs created. There is no reasonto believe this differs from the figures quoted in

8 Employment,the smallfirm and the labour market

Storey, Keasey, Watson and Wynarczyk (1987), which suggestthat out of every hundred businessstarts, the largestfour at the end of a decadewill contribute 50 per cent of jobs. We therefore believe it is appropriate to emphasizethat, amongst small firms in particular, there is a greatvariety of performance.In essence,any apparentrapid rate of job creation amongst small firms as a whole is strongly influencedby the major contributionmadeby a small numberof such firms. This servesto put the simplistic notion of the small businessas a natural and effortless engine of job generationinto some context. Viewed from within, we note that it is likely that only a minority of small businessesdemonstratethis capacityand willingness to expand their employment levels, even during a period of quite rapid and sustainedemployment growth in the economy as a whole. Viewed from without, this divergenceof experiencedetractsgreatly from the appeal of a simple and single constraint on job expansionby small businesses.If legislative bureaucraticor union-inspired'burdens'are really the dominant factors in restraining small businesspotential, then it is surely surprising that their widespread reduction has producedsuch an unevenpatternof job growth. Seenin this context, the bureaucratic constraints argument of Burdens on Business (HMSO 1985) appearsquite unsatisfactory. It also suggeststwo productiveavenuesfor exploration:first, what featuresmark out the minority of growing small businessesfrom the herd?In this volume, the contributionof North, Smallboneand Leigh centres on the experiencesof establishedmanufacturingbusinesses, and beginsto provide valuableanswersto this question.Second,what special constraintsare operative on the non-growth small business, which the 'flyers' appear to shrug off? This qustion is pursued by severalcontributorsto this book:-for example,Atkinson and Meager are concernedwith someof the managerialand proceduralshortcomings of small businessesin addressingthe external labour market effectively; Bartlett considers the importance of ownership and motivation within the enterprise;Jones,McEvoy and Barrett demonstrate the restricted staffing options which in reality confront small businesses,particularly the ethnic minority ones with which they are concerned. It seemsclear that small businesssupportin the future will needto have less to do with the removal of supposedlygeneralizedbarriers, and more to do with discrimination and selection: discrimination in the identification of growth potential, and selectionin the identification of the key operativeconstraintson job creation.

Smallfirms and employment 9 JOB QUALITY IN SMALL FIRMS

By objective measuresthere is little doubt that, both in the USA and the UK, the quality of jobs in smallerfirms is generallylower than that provided by large firms. The US position is summarizedby Brown, Hamilton and Medoff ( 1990) who say: Workers in large firms earn higher wages, and this cannot be explained completely by differences in labour quality, industry, working conditions, or union status. Workers in large firms also enjoy betterbenefitsand greaterjob securitythan their counterparts in small firms. When these factors are added together,it appears that workersin large firms do have a superioremploymentpackage. The higher quit rates and desire for unionisation in small firms provide additional evidenceon the quality of jobs offered by large employers. Brown et al. (ibid.) also suggestthat employeesin large firms in the USA, with at least a hundred workers, were about twice as likely as • those in small firms to have participated in a formal training programmein their current workplace. The evidencefor the UK is strongly supportiveof the US findings. Scott, Roberts,Holroyd and Sawbridge(1989) documentthe position well; they illustrate that, whilst there is a needfor close integrationof work-force and the owner(s)in a small firm, this should not necessarily be mistaken for a harmoniousworking environment. They, and others more stridently, such as Rainnie (1989), reject the view of the Bolton Committeethat: In many respectsthe small firm provides a better environmentfor the employeethan is possiblein most large firms. Although physical working conditionsmay sometimesbe superiorin large firms, most people prefer to work in a small group where communication presentsfewer problems. The employeein a small firm can more easily see the relation betweenwhat he is doing and the objectives and performanceof the firm as a whole. Wheremanagementis more direct and flexible, working rules can be varied to suit the individual. We are not suggestingthat the present problems of industrial relations in this country would be solved if the role of small firms in the economywere greater,but perhapsthey would be less acute. (Bolton 1971)

10 Employment,the smallfirm and the labour market The contrastingview of Scott et a!. is: [Our] study as a whole supportedthe view of the importanceof nonformal channelsof managementand the existenceof a network of interconnectedrelationshipsat an individual, personto personlevel, betweenthe employerand the employed.... Howeverthis should not be mistaken for harmony, as the obedience of individual workers may be the product of a 'submissionagreement'. (Scott et a/. 1990) On the questionof wage paymentScott et a/. say: Our findings on pay indicate much sectoralvariation. Aggregated data suggeststhat small firms do not pay as high wages as large firms, but our case study evidencesuggeststhis is not universally true .... When we turn to the traditional manufacturingsectorwe find evidence of perceptual gap between owners/managersand workers, with owner managersevaluatingthe level of wages they offer positively, and workers seeingthese levels rather negatively. This clearly has implications for the potentialfriction that can arise over wage 1ssues. (Scott et a/. ibid.) Another implication of the quotation from the Bolton Committee

( 1971) above is that workers in smaller firms are likely to experience higher levels of job satisfactionthan those in larger firms. It is often

implied that this may be someform of substitutefor the lower wages paid by smaller firms. Yet the empirical support for the hypothesis that there is higher job satisfactionamongstworkers in small firms than in large firms is weak. Curranand Stanworth(1981) demonstrate that there are wide variations in expressedjob satisfactionin similar sized firms in different sectors.They also show that differencesexist betweenworkersof different agesand responsibilities.Thusemployees with family responsibilitiesare more materially mindedthan either the very young or the very old workers. Curran and Stanworth (ibid.) conclude that, when sector is controlled for, differences in job satisfactionbetweenworking in small and large firms disappear. Work in the USA by Kruse ( 1992) and by Idson ( 1990) has clearly demonstratedthat wages are higher in larger firms, but that job satisfactionis invariant accordingto establishmentsize. Kruse (ibid.) showsthat a rise of one standarddeviationin the log of establishment size is associatedwith approximately7 per cent higher wage rates. He also showsthat, althoughsomeof this is explainedby the natureof the work undertaken,controlling for this by the inclusion of twenty-six

Smallfirms and employment 11 working condition variablesdoes not reducethe power of establishment size as an explanationof higher wages. In essence,there is an establishmentsize effect which is positively associatedwith higher wagesand which is independentof the nature of the job undertaken. Idson (1990) examinesthe relationshipin the US_A betweenestablishment size and job satisfaction.He shows that, when there are no controlsfor the attributesof the work environment,job satisfactionis clearly higher in smallerfirms. Using a similar methodologyto that of Kruse (1992), Idson (ibid.) then takes a number of working environment variables to determine whether their inclusion leads to a reductionin importanceof establishmentsize. Many of thesevariables relate to work structure, to test for any greater rigidity of work structure in larger establishments. Their inclusion reduces the coefficient on the establishmentsize variable to zero, indicating no difference in job satisfactionacrossdifferent sizes of establishments. Idson believesthis supportsthe hypothesisthat lower levels of worker satisfactionin large establishmentsreflect their greaterrigidity in the structureof the working environment. To some extent, the USA findings are also mirrored amongstUK small firms. The Labour ForceSurvey(LFS) is ableto shedsomelight upon the characteristicsof workers employed by smaller firms. It showsthat a higher proportion of male small businessemployeesare aged between16 and 24, than is the casefor larger firms. Thus 28 per cent of male small businessemployeesare in this agegroup, compared with only 21 per cent in large firms. This younger age profile is reflected in marital status, with fewer male employees of small businessesbeing married.The LFS also showsthat employeesof small businessestend to have fewer higher qualifications and a slightly higher proportion tend to work very long hours. Thus employeesin establishmentswith lessthantwenty-five workersin 1987 had full-time pay of £159, comparedwith an averageof £208 for all employees. Interestingly,however,thereis no evidencethat the ethnic distribution of employeesis more heavily concentratedin very small firms. Overall, the evidencefrom both the UK and the USA suggeststhat, accordingto most measures,the job quality providedby small firms is lower than that in largerfirms. Eventaking into accountthe quality of the employee, wages are lower, training is less frequent and the evidencefor a compensatinghigher level of job satisfactionis weak. Furthermore, in view of the financial weakness of many small businesses,their exclusionfrom some protective legislation and their relatively low levels of unionization,effectivejob securityfor workers is likely to be lower than for workers in large firms.

12 Employment,the smallfirm and the labour market

Undoubtedly,this list can be extendedalmost indefinitely, but to little purpose.Rather,it may be more useful to reversethis argument: if it is true that small businessesgenerally offer a less favourable employmentpackagethan do large ones,then in a competitivelabour market this must have implications for the quality of labour which they are able to attract and retain. The inability or unwillingnessto offer terms and conditionswhich are generallyas favourableas those offered by larger establishmentsand by the public sector, may itself impose seriouslimitations on both the ability to securethe designed staffing profile and its effective utilization within the small business. Restrictedaccessto sub-optimallabour resourcesmay thereforeitself lock some small businessesinto a cycle of low productivity, low profitability and thus a low wage offer. Jones,McEvoy and Barrett show in Chapter5 how tightly sucha trap can bite on somebusinesses in low margin sectorsso that their staffing options reduceto a single 'long hours, family labour' equation. Atkinson and Meager also suggest(Chapter2) that small firms' initial forays into a competitive labour market are associated with a more than commensurate incidenceof labour-relatedproblems. Thus, if the quality of jobs createdby small businessesis generally problematic,this is a problem for employeeand entrepreneurboth. Resolvingit, from the inside by effective managerialinitiative or from the outsideby legislative minimum standards,is likely to be mutually advantageousin the medium term. SELF-EMPLOYMENT

Self-employmenthas grown in many of the developedeconomiesof the world over the last decade(OECD 1992). The fastest growth in self-employmentof any developedcountry between 1979 and 1990 was in the UK. In 1979, 7.5 per cent of the civilian employment consisted of individuals who were self-employed (excluding agriculture). By 1990 this had risen to 12.2 per cent. OECD (1992) make an interesting distinction betweenthe 1973-9 period and the 1979-90 period. They show that, in the earlier period, of twenty developed countries, ten experienced a decline in rates of selfemployment and ten experiencedan increase. During the 1979-90 period however, seventeenof the twenty countriesexperienceda rise in the rate of self-employment. Only Japan, Luxembourg and Denmark experienced a fall in the proportion of total civilian employmentwhich was self-employed. The internationalcontext is thereforeimportant in understanding

Smallfirms and employment 13 the increasein ratesof self-employmentin the UK. The explanations for this increaseparallel explanationsfor the increasedimportanceof smaller firms within the economy. These include the shift from manufacturingto services,technologicaladvances,the fragmentation of largerfirms, governmentpolicies to promotean EnterpriseCulture, the increasingavailability of start-up capital, etc. This can only be a partial explanation,since the self-employedhave their own personal and unique characteristicswhich distinguish them from small businessesin general. It is clear that self-employmentis highly concentrated in four sectors, viz. construction; hotels and distribution; financial services;and other services.With the exceptionof hotelsand distribution, all threesectorsshoweda striking increasein the number of self-employedworkers between1981 and 1991 (Campbelland Daly 1991). Whilst therehasbeena major increasein the numbersof individuals who are self-employed, there has been a sharp decreasein the proportion of the self-employedwho employ others. In 1981, 40 per cent of the self-employed had employees, whereas by 1991 this percentagehad fallen to 31 per cent. It is also clear that between1981 and 1991 there was a faster increase(of more than 80 per cent) in the numbersof self-employedin the youngestage-group,between16 and 24 years,than for any other age-group. Jones,McEvoy and Barrett (Chapter5) show that self-employment varies markedly betweenethnic groups. For the white population, 13 per cent of thosein employmentwere classifiedas beingself-employed between1989 and 1991. Amongst ethnic groups, however, there is a major difference beweenthe West lndianjGuyanesecommunity, only 7.2 per cent of whom were self-employed,comparedwith the Indian or Pakistani community, where more than 20 per cent were selfemployed. Meager(1992) showsthat the factors which appearto influenceselfemploymentare broadly similar in both the UK and Germany. He shows that self-employmentis most characteristicof qualified, older individuals who are married and who live in a low unemployment region. In both countries he finds them concentratedin certain occupations,notably literary, artistic and sports, managerial,construction or agriculture. Given the generalincreasein rates of self-employmentin the last decade,the key questionis whether these trends will continue. Acs, Audretschand Evans (1992), in a review of thesetrends in both the developedand less developedcountries,concludethat the key factor negativelyassociatedwith self-employmentis economicdevelopment.

14

Employment,the smallfirm and the labour market

It is for this reason that they believe the recent upsurge in selfemploymentin developedcountries will not continue. Instead, they believe that self-employment rates will revert to their former downward trend as wealth increases. Rees and Shah (Chapter 9) make a major contribution to our understandingof these changesin the UK. They demonstratethat, despitethe role which lower rates of personaltaxes were expectedto play in encouragingmore effort, the 1980ssaw a fall in the numbersof hours worked by the self-employed. THE LABOUR MARKET AND THE SMALL FIRM It has alreadybeenobservedthat the labour employedby small firms differs from that in large. In general, it is less likely to be formally qualified, to be youngerbut to be rather more poorly paid. Nevertheless, the key question which is raised by Atkinson and Meager in Chapter2 is the extent to which the small firm is well-served by the labour market. Quite correctly, they argue that the focus of much prior researchhas been on the extent to which small firms serve the labour market, ratherthan on how well the small firm is servedby the labour market. When these issueshave been addressedby researchers,they have tended to demonstratethat, particularly amongstfast-growing small firms, problemsexist. For example,in the studyfor the Departmentof Tradeand Industry (DTI 1991) conductedby Aston University, it was found that problems in the labour market were more frequently referred to than any other group of problems, including those of financing. In the study by the Cambridge Small Business Centre ( 1992), matterswere reversed,with finance issuesbeing more important. Nevertheless,even here, labour market and employmentissues were a major causeof problemsfor the small firms sector. The work by Cromie (1991) on new firms in Northern Ireland pointed to the frequencywith which smaller firms experiencedlabour market problems. This servedto confirm the earlier results of Storey (1985) who also showed that labour-market-relatedproblems were the most frequently referred to by new enterprises. Case studies of labour-market-relatedproblems in small firms suggest that owners are frequently dissatisfied with the quality of labour on offer. They refer to the problems of obtaining suitable labour - generallyreferring adverselyto the attitudeof young workers being insufficiently committed to work. It is much less common for smaller firms to complain about the lack of formal educational

Smallfirms and employment 15 qualifications, since these are not given a high priority amongst owners, many of whom lack thesequalifications themselves.Owners of small businessesare, however, likely to criticize the education system for producing individuals without basic reading and writing skills (Storey and Strange1992). It seemslikely that the relative importanceof labour-relatedand problemsfor any firm is largely cyclical. It would be business-related surprisingif we did not observea relative increasein the importanceof labour-relatedproblems(shortages,high turnover,low quality) during times of relatively high growth and during times of recession,an concerns(marketcontraction, increasedconcernwith business-related cashflow, profit margins,etc.). The more important considerationis surely the extent to which firms deploy, or can generate,the capacity (at best)to resolveand (at least) to survive them. In Chapter6, North, Smallboneand Leigh show that amongtheir establishedmanufacturing concerns,survival itself ~s no mean considerationfor the small business,with fully a third of the jobs from their 1979 cohort lost simply becauseof closurein the following decade.This suggeststhat, although small businesseshave frequently been lauded for their supposedsuperior and intrinsic flexibility in the face of change,the paucity of resources(financial, managerialand human) with which they confront such a need for change is likely to be one of their principal weaknesses.The 'upside'of their findings is that, amongsta relatively small number of firms, significant job creation took place and the weaknessesobservedwere clearly surmounted. A particular group within the labour market which has recently become of interest to researchersis non-owning managers.Such individuals are seenas a key to growth in smallerfirms. Stanworthand Gray (1991) show that the proceduresand policies usedto recruit and developsmall-firm managers,who are not ownersof the business,are very different in small, comparedwith large, firms. The typical small firm, non-owning managerstend to be recruited through highly informal methods.These include the businessowner making a personal approachto the manager,who may be working for another company.It also includesthe greateruseof internal promotionfrom a non-managerialposition to a managerial position in small firms. Theseideasand conceptsare exploredin greaterdepth in Wynarczyk et a!. ( 1993), where it is clear that amongstthe small-firm population there is a difference in nature and proceduresof recruiting managers betweenfast-growing small firms and the more typical small firms. The fast-growing small firms are more likely to recruit externally; to recruit managerswith experiencein the large firm sector; to recruit

16 Employment,the smallfirm and the labour market individuals with high levels of qualifications; and to seekindividuals with more entrepreneurialpersonalcharacteristics.On the otherhand, the typical small firm is more likely to be recruiting internally but, where external recruitment does take place, it tends to be of individuals who are currently working in smaller firms. The more modestlygrowing small firm is more likely to recruit managersfrom within the sameindustry as that in which the firm operatesitself and to show a preferencefor individuals who are lesslikely to 'rock the boat'. It is only in recent years that small-firm researchershave begunto examine the complex interaction between the small firm and the labour market. In particular,the questionof how well the small firm is servedby the labour market is now being addressed.Researchto date hassuggestedthat the small firm often finds this a significant problem, if not the most seriousof all problems. Whilst it pays less well than largerfirms, the labour which it recruits, often by informal methods,is frequently judged unsatisfactory.Labour, however, is not a uniform commodityand differencesclearly exist betweenvarious occupational groups and locations, and accordingto 'type' of small firms. Given these themes which have been addressedby researchers concernedwith smallerfirms, we now attemptto provide an overview of the chaptersin this volume. Our purposecannot be to act as a substitutefor readingthe chaptersthemselves,but rather to indicate that they are in the 'mainstream'of debatein this area. In this very brief review we attempt to identify the 'added value' which the chaptersprovide. THE BOOK

The value of the Atkinson and Meagerchapter(Chapter2) is that it overtly asks, and fully develops, this question: how well does the labour marketservethe small business?In view of what has beensaid above,it is hardly surprisingthat their answeris less than optimistic. Their chapteroutlinesa typical trajectoryfollowed by small businesses according to their size: from deliberate and possibly prolonged abstentionfrom the labour market, small businessesare presentedas reluctantlyventuring into a competitivelabour market, in which they enjoy relatively few proceduralor substantiveadvantages.They are shownto rely for too long on relatively ad hoc and informal methods of both determiningtheir labour requirementsand implementingthem in the labour market. As the task of simply maintaininga labourforce becomesmore substantialand recruitment more frequent, so small

Smallfirms and employment 17

businesses are shownto respondby introducingboth greaterformality to their proceduresand coherenceto their managementstructures. The processof growth is shown to entail quite deep-rootedchanges in the manner in which recruitment is conceived, conducted and managed.Atkinson and Meager'stitle, 'Running to stand still', is in fact a kindness to such businesses,who are obliged to run by the demandsof the labour market, but do not standstill. Rather,they fall back, becausetheir responseis (in aggregate)never sufficient to their needs,and the result is that with size comesa growing likelihood that they will experiencedifficulty in meeting their labour needs. They show that it is not until firms have somethingover twenty employees that the seriousnessof such difficulties stabilizes, and it is not until they have over fifty that it generally begins to decline ... and then only slowly. By the time a businesshas containedand reducedthe severityof suchproblemsto the level experiencedin a firm of, say, ten people,it has long since ceasedto be a small firm. If most, or even many, growing small businessesexperiencesuch negativereturnsto employmentgrowth, then we might expectthereto be strong managerialresistanceto it, particularly among firms with fewer than twenty staff. And it is againstthis reality that we must set the 1978 ExpenditureCommittee'snai.'ve hope (see above) for every small businessto take on one more person. As Atkinson and Meageruntanglethe developmentof a managerial structure in parallel with the process of employment growth, it becomesclear that ownershipis divorcedfrom full managerialcontrol in businessesmuch smaller than Bolton's 200 employees.Although they point to the particularly strong grip which proprietorskeep on recruitment, nevertheless so widespread is the emergence of a managerial structure that Bolton's definition of 'a firm of 200 employees owned·and managed by the same person' is strongly qualified (Bolton 1971). In addition to charting the developmentof employmentpractices and managerialresponsibilities,this chapter offers some pausefor thought about the potential danger of transferring items used in describinglarge businessesto the small businessfield. For example, training in particularis shownto be a radically different activity in the small businessfrom in the large. Not only do we observe clear differencesin how such training is undertaken(small businesspreferencefor informal, often proprietorial,and 'on the job' training is wellknown), but also in why it is undertaken.The chapterarguesthat in contrastto the skill formation which is the proper aim of large firm training, small-firm training is more often designedto build on and

18 Employment,the smallfirm and the labour market extendexisting skills, particularly in a working environment,than to provide wholly new ones. To take anotherexample,in a large firm, recruitmentis generallyacknowledgedto begin with the declarationof a vacancyand end with the identification of a suitablecandidate.In a very small firm, however, it is suggestedthat this sequenceis often reversed, with the existence of a suitable recruit acting as the precondition for a vacancy to be created. While such conceptual difficulties bedevil our understandingof small businessdynamics,they must also poseseriousdifficulties in the real world for managersand proprietorsengagedin making such a transition. Many of thesethemesare echoedby Kitching in his study of service sectorsmall firms (Chapter3). This chapterlooks at how employers constructtheir workforcesin terms of the use of part-timestatus,selfemployedand temporaryworkers, and their gendercomposition.The incidence of use of different kinds of workers varies considerably betweensectors. Thesedifferencesreflect the interplay of two broad sets of factors: the characterof employerdemand,in terms of the technicalskills and other attributeswhich job applicantsare requiredto demonstrate;and the supply of workers on particularterms. Differencesbetweensectors in thesedemandand supply factors suggestthat the employmentof different kinds of workers is relatedmore to labour marketconditions in specific sectorsthan to size of firm. In Chapter4 Atkinson also developsthesethemesby examiningthe extent to which small firms seekand utilize externaladviceto address employment-relatedproblems.His conclusionsmakedepressingreading. They emphasizethat small firms have a very low level of awarenessof the availability of adviceand a low likeliho'od of utilizing sources.Only about one in three of the firms used externaladvice or assistancein recruiting labour. Interestingly, of the sources used, accountantswere deemedto be the most useful, confirming the results of a smallerstudy of growing businessesin northernEngland(Storey, Watson and Wynarczyk 1990). The Atkinson chapteralso points to the considerablefirm-to-firm differenceswithin his sample,reflecting differencesin the product marketsand entrepreneurialaspirationsof the owners. Theseinterplaysare also demonstratedin Chapter5 contributedby Trevor Jones,David McEvoy and Giles Barrett. Here we observehow groupsdisadvantagedby racism in the wider society may turn to selfemploymentas, for them, the most readily availableform of economic activity. However, the businesssectors in which they are concentrated, in particular the low-order shopping businessessuch as

Smallfirms and employment 19 food retailing and newsagents,allied to a lack of capital resources,are shown to impose extremely sterndisciplines on the workers in such businesses.It is frequently only through the exploitation of their own labourpower(essentiallyproprietorialand familial working time) that such marginal businessesbecome viable and are given competitive edge. Jones, McEvoy and Barrett's interviews with some 400 small entrepreneursin fifteen diverse labour marketsin the UK provide us with a generalizedview aboutthe importanceof long working hoursin many small businesses,with only a quarterworking for forty hours a week or less, and an average weekly input of fifty-three hours. However, Asian entrepreneursare shown to averagesixty hours a week, in contrastto forty-sevenhours amongwhites. It is, of course,possiblethat suchlabour-intensiveapproachesare a matter of choice and that they are viewed by their proponentsas particularly cost-effectiveand profitable approachesto business.This argument is rejected in the chapter, and it is suggestedthat such labour-intensivepracticesare not in themselves'a sufficient precondition for entrepreneurialreturns'but ratherbetray'a lack of alternative resources',emphasizingthe intensely problematic environment in which ethnic minority businessesmust strugglefor survival. It is the concentrationof Asiansin the easy-to-enterlow-order food and news retailing businesseswhich gives rise to their high propensity to work extendedhours. Further,such working-time profiles are seen to be an economicnecessityratherthan a cultural attribute. Similarly, it is suggestedthat the working-time inputs of Afro-Caribbeansare also determinedby the natureof the businesseswhich they tend to be concentrated,and in which long openinghours are less availableas a meansto competitive advantage. The use of unpaidand underpaidfamily labourcan be treatedin the same way. In Bose (1992) we can observe the differing tendencies betweenwhite and ethnic minority businessesto deploy family labour. This reliance is further highlighted here, but it is shown to reduceas more formal employment relationships are establishedamong the larger businesses.Jones, McEvoy and Barrett suggestthat this is a tendencycommonto all small businesses,and supportfor this view is found in Atkinson and Meager'sexposition of the reluctanceof the very small businessto commit itself to a formal employmentrelationship. The point is that where family labour is both available and appropriate,it is likely to be drawn into the staffing practicesof the business. Thus in both cases,long hours and family labour, we observethe economic requirementsof the businessdrawing from the entrepre-

20 Employment,the smallfirm and the labour market neurs one of the few resourcesat their disposal. Although, Jones, McEvoy and Barrett are at some pains to distinguish their ethnic minority businessesfrom white ones,this narrowing-downof business strategies, between the exigencies of the market and the lack of alternativeresourceson the part of the entrepreneur,may well be a more generally applicable notion, but one simply observed at its extremeamong their ethnic minority businesses.Indeed, small businessesare frequently criticized for a lack of strategicplanning and an over-relianceon ad hoc, fairly spontaneousresponsesto events. Another, perhaps more revealing, way of looking at such pragmatismis that small firms are generallydealt very few cardsand are obliged to play them in a game whose rules they cannot much influence. It may also accountfor much of the variability within the world of the small business.Taking both product and labour markets as they find it, and lacking the resourceto do much more than adapt smartly to their environment,are perhapsmore commonbehavioural facets of small firms than the deliberateand consciousevaluationof alternative options, which their larger counterpartscan afford and which may lead their practicesto convergeinto more typecastformats than is evident amongsmall businesses. David North, David Smallboneand Roger Leigh (Chapter6) are similarly concernedwith the meansby which small businesses(in this case,maturemanufacturingbusinesses)accommodateto their circumstances.Their findings confirm that relatively few small firms, even well-establishedones, have explicit employmentstrategies,but that their labour practicestend to be as varied as their product market circumstances.Their initial focus is on the employment growth potential of such businesses.Their ten-yearpanel data clearly shows that employmentgrowth was most prevalentamong younger (under 20 yearsold) and smaller(underfifty employees)businesses,in certain industrial sectors,notably instrumentsand electronics. However,evenmore striking is the associationbetweenemployment growth and above-averageoutput growth: among thesemature businesses,the real value of output neededto have doubled in order to producesignificant employmentincreasesover the decadefrom 1979. This finding servesto illustrate the shallownessof argumentsbasedon the intrinsic, job-creatingpotential of the small business.In view of what has beensaid aboveabout the difficulties encounteredby small businessesin expandingtheir work-forces, it shows how much small employers are creatures of a wider economic context, and how unreasonablewould be any expectations that their job-creating capacityexists independentlyof that context. Job creationis always a

Smallfirms and employment 21 balance betweenjob losses and job gains, and this chapter clearly shows that the biggest sourceof job loss among this panel has been businessfailure - occasioned,we may surmise,by that very economic context. It emphasizesthat, in terms of output growth, employment changeand businesscessations,wide sectoralvariationsexist. The secondconcern of the paper is to identify changesin labour utilization during the 1980s. About a ftfth of the panel had significantly increasedtheir labour flexibility during the decade;for the remainder, only marginal changes in labour flexibility were observed. Perhapsnot surprisingly, where such developmentshad taken place, they were more likely to involve changesin functional flexibility (i.e. flexibility in the way in which labour is used) rather than numericalflexibility (i.e. flexibility in the volume of labourused). This is almostcertainly a reflection of the sectoralratherthan the size compositionof their sample,as manufacturingbusinesseshave much less need to match staffing to short-term fluctuations in customer flows than do servicesectorfirms. The emergent picture here is one of businesseswhich enjoyed sufficient flexibility to adjust to the demandsof the 1980s product market, without the needfor any radical break with acceptedstaffing practices.By contrast,those businesseswhich had sought significant increasesin flexibility were also those which had made the most market transformationsin their product market, use of technology, and productionprocesses.Thesewere not necessarilythe most rapidly growing businesses;they were just as likely to be struggling for survival. Thus, for most of thesefirms, survival and growth had not been predicatedupon major upheavalsin their staffing practices,but to the extent that surviving or expandinghad required far-reaching adjustmentsin the business,employmentpracticeshad beenrevisedin line with theseother businessadjustments. The relationshipbetweenthe characteristicsof the owner-manager and the behaviourof the small businesshas been a fruitful sourceof insights about the ways in which small businessesrespond to particular, usually economic,stimuli. Most often, such work has built on the contrastbetweenthe typical responsesof larger, bureaucratized and (supposedly)economically rational corporations,and the more subtle and complex motivations of the small-businessowner. In Chapter 7, contributed by Will Bartlett, this perspectiveis valuably extendedto cooperativebusinesseswhich are collectively owned and managed,and whose motives and consequentpriorities might be expectedto standin contrastto thoseof both the businesscorporation and the thrusting entrepreneur.Of particular value here are not only

22 Employment,the smallfirm and the labour market the comparisonsbetweencooperativesand thesemore 'normal' businesses,but also those betweendifferently structuredcooperatives. Bartlett'schapter(contrastingfifty Italian and Spanishcooperatives with a matchedsampleof fifty privately owned small firms) addresses the issuesof job growth and job quality discussedabove,and goeson to consider the nature of linkages betweensuch jobs and the local economy.He showsthat a clear trade-offis evident: on the one hand, the cooperativeshave delivered higher quality jobs, in terms of skill formation, employmentstability, productivity and incomes; and on the other hand,the rate at which they haveexpandedemploymenthas been lower than for comparable private firms. Cooperatives,are shown to be more inclined towards investment in capital assets, improving their capital:labour ratio and so (in part) increasing productivity, in contrast to the more labour-intensive strategies pursuedby privately owned firms. These outcomesare explained in terms of the income-maximizing goalsof the cooperatives,in contrastto the profit-maximizinggoalsof the private firms. One consequence,at least in the Italian case,is that cooperativesare shown to increase employment less quickly than private firms in responseto a given increasein demand. The clear policy consequencedrawn from the research is that cooperative developmentis more likely to be suitablefor local economicdevelopment strategies predicated on developing skills and competences among the work-force, rather than on more straightforward quantitativetargets. In Will Bartlett's chapter, skill and experiencewere found to be more strongly invoked by cooperativeenterprisesas selectioncriteria for employmentthan was local residence.In view of the findings of Atkinson and Meager (Chapter 2) about the close focus on local labour markets among smaller small businesses,this may not be a matter of undue concern, but the issue arises again in Chapter 8, contributed by Alan McGregor and Ruth Fletcher. Looking at particularly disadvantagedareas, notably inner-city sites and rundown housing estates,they assessthe contribution made to local economicand employmentwell-being by two contrastingapproaches: community enterprise (community-owned businesses specifically linked to local residents)and managedworkspaces(subsidizedbusiness premisessited in target areas,but available to a wide range of commercial businesses).Despite the explicit requirement to link enterprisesto the local labour market in the community enterprise model, the managedworkspacemodel is shown to offer a more costeffective approach.

Smallfirms and employment 23

In particular,the managedworkspaceis shownto generatea higher volume of employment at a lower cost per job in terms of public subsidy.The higher volume of job creationunderthis approachis held to outweigh the fact that local jobseekersare not explicitly favoured. To the extent that Atkinson and Meager are correct in their positive associationbetweenbusinesssize and recruitment radius, then such relatively small businesses for whom managedworkspacesare particularly suited are unlikely to look far afield for their labour in any case. Despitethis generalassociation,McGregorand Fletchershow that the propensity to recruit locally is strongly influenced by the origins of both the firms in question and their proprietors. They suggestthat positive requirementsfor these businessesto recruit locally may be counter-productive,and that a better course would be to direct, supply-sideinvestment to training and counselling work with local residents. The final chapteris by Rees and Shah and it attemptsto examine the characteristicsof the self-employed. It also provides very little succourfor much of public policy towards small businessesand the self-employed.It asksthe crucial question:'Did the EnterpriseCulture of the Thatcheryearsinduce self-employed(and employed)peopleto work harder,i.e. did they work longer hoursthan in previousperiods?' From the data it would appearthat, so far as the self-employedare concerned,the answeris a resounding'No'. Reesand Shahsuggestin Chapter9 that the factors which influence the number of hours worked by the self-employed are determined primarily by family and personalcircumstances.They show that the effect of marriage is to dramatically increasethe number of hours worked by the self-employed, whereas the effect of having young children is to decreasehours worked. This contrasts with manual workers, whose family circumstancesappear to have no impact whatsoeveron hours of work. So far as non-manual workers are concerned,the effect of marriage is again to increasethe number of hours worked and the effect of having young children is to decrease the numberof hoursworked. In both thesesensesthe non-manualand the self-employedappearto respondsimilarly, exceptthat the impact in terms of hours worked is greateron the self-employedthan it is upon the non-manualgroups. The only area of differenceis that the effect of older children is not to influencethe hoursworked by the selfemployed,but to increasethe numberof hoursworked by non-manual groups. However, it is its examination of the changeswhich have taken placebetween1973 and 1985that is the key interestof the chapter.The

24

Employment,the smallfirm and the labour market

authors note that, taking into accountthesedemographicinfluences, the average number of hours worked by the self-employed rose consistentlybetween 1974 and 1978. However, from 1979 until 1986 the number of hours worked by the self-employedactually fell. This is a very ~triking~triking ~triking~trikingand important finding, since the objective of taxation and enterprisepolicies during theseyears was to encourage individuals to work harder. One would therefore have expectedthat the self-employedgroup, if they were behavingin the way in which they were predicted to, would have worked more hours rather than less. Although Rees and Shah do not speculateon this matter, one possibleexplanationclearly compatiblewith the other findings in this volume is that the effect of reducedtaxation is to increasethe takehome pay of the self-employedper hour worked. If such an individual is seekingonly a specified or fixed level of income, then reductionsin taxationwill clearly lead to a fall in the numberof hours worked. Such satisficingbehaviouron the part of the self-employedor small business owners could easily be inferred from Chapters2 and 3 by Atkinson and Meager and by Kitching respectively. Taking the contentsoverall, the researchprovideslittle supportfor many of the tenetsof public policy toward small firms which focused upon employmentcreationduring the 1980s.It suggeststhat taxation policy may have had the reverseeffect to that intended,that 'burdens upon business'have only had a modest effect upon constraining employmentgrowth in the small-firm sector. Instead,it suggeststhat the central issuesof managementdevelopment,training, and personnel expertisecontinueto be implementedby only a tiny proportion of UK small businesses,but do not get the focus they deserve from government.

NOTES I The creation of an 'enterprise culture' was, of course, as much about ideology as it was about employmentcreation. 2 David North, in a letter to us, points out that the early 1980s were characterized by specific small firm measures,such as the Enterprise Allowance Schemeand Loan GuaranteeScheme.This was then followed by a period in the mid-1980s when the emphasisshifted to deregulation.

REFERENCES Acs, Z., Audretsch,D. and Evans, D. (1992) The determinantsof variations in self-employmentrates acrosscountriesand overtime',paperpresentedat Warwick BusinessSchool.

Smallfirms and employment 25 Armington, C. and Odie, M. ( 1982) 'Small businesses- how many jobs?', Brookings Review,Winter: 14-17. Birch, D.L. (1979) 'The job generation processes', MIT Project on Neighborhoodand Regional Change,Cambridge,Mass. Bolton, J. (Chairman)(1971) Report of the Committeeof Enquiry on Small Firms, Cmnd 4811, London: HMSO. Bose, M. (1992) 'Open all hours: the powerful self-help ethic amongstethnic small businesses',in Starting up: a Barclays report on Britain's small businessmen and women,London: Barclays Bank. Brown, C., Hamilton, J. and Medoff, J. (1990) EmployersLarge and Small, Cambridge,Mass: Harvard University Press. Buchannan,G. (1986) 'Local economic developmentby community businesses',Local Economy,(2) August: 17-28. Burrows, R. (ed.) (1991) Deciphering the Enterprise Culture, London: Routledge. CambridgeSmall BusinessCentre( 1992) 'Stateof British Enterprise',Department of Applied Economics,University of Cambridge. Campbell, M. and Daly, M. (1991) 'Self employment: into the 1990s', EmploymentGazette,June: 269-92. Cornforth, C. (1983) 'Somefactors affecting the successor failure of worker co-operatives:a review of empirical researchin the UK', Economic and Industrial Democracy,4: 2. Cromie, S. (1991) 'The problemsexperiencedby young firms', International Small BusinessJournal, 9(3): 43-61. Cross,M. (1983) 'The United Kingdom', in D.J. Storey(ed.) The Small Firm: An International Survey,London: Croom Helm. Curran, J. and Stanworth, J. (1981) 'A new look at job satisfactionin the small firm', Human Relations,34(5): 343-65. Curran, J., Blackburn, R.A. and Woods, A. (1991) 'Profiles of the small enterprise in the service sector', ESRC Centre for Researchon Small Service Sector Enterprise,Kingston Polytechnic. Daly, M., Campbell, M., Robson,M. and Gallagher,C. (1991) 'Job creation 1987-89: the contributionsof small and large firms', EmploymentGazette, November:589-96. Departmentof Trade and Industry (1985) 'Burdenson business- report of a scrutiny of administrativeand legal requirements',London: HMSO. Departmentof Tradeand Industry (1991) Constraintson the Growth of Small Firms, London: HMSO. Doyle, J.R. and Gallagher, C.C. (1987) 'The size distribution, growth potentialandjob-generationcontributionof UK firms', International Small BusinessJournal, 6(1) Autumn. Dunne, P. and Hughes, A. (1990) 'Small businesses:An analysis of recent trendsin their relative importanceand growth performancein the UK with some Europeancomparisions',Small BusinessResearchCentre, Working PaperNo. I, Cambridge. Evans, D.S. (1987) 'The relationship between firm growth, size and age: estimatesfor 100 manufacturingindustries', Journal of Industrial Economics, 35: 567-81. Expenditure Committee (1978) People and Work, Prospectsfor Jobs and Training, 13th Report, London: HMSO.

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Gallagher,C. and Miller, P. (1991) 'New fast growing companiescreatejobs', Long Range Planning, 24(2): 96-10I. Gallagher, C. and Stewart, H. (1986) 'Jobs and the businesslife cycle in the UK', Applied Economics, 18 August: 875-900. Gallagher, C., Daly, M. and Thomason,J. (1990) 'The growth of companies 1985-87 and their contribution to job generation',EmploymentGazette, February: 92-8. Hart, P. (1987) 'Job generationand size of firm', National Institute of Social and Economic Research,DiscussionPaper 125, May. ldson, T.L. ( 1990) 'Establishmentsize, job satisfactionand the structure of work', Applied Economics,22: 1007-18. Jacobs, M. ( 1986) 'Community business: are their aims confused?', Local Economy, 1(12) August: 29-34. Johnson,P.S. ( 1989) 'Employmentchangein the small establishmentsectorin UK manufacturing',Applied Economics,21: 251-60. Johnson,S., Lindley, R. and Boularkis, C. (1988) 'Modelling aggregateself employment: a preliminary analysis', Institute of Employment Research, University of Warwick. Kruse, D. ( 1992) 'Supervision,working conditionsand the employersize-wage effect', Industrial Relations31(2): 229-49. Meager, N. (1992) 'The characteristicsof the self employed: some AngloGerman comparisons',in P. Leighton and A Felstead (eds) The New Entrepreneurs,London: Kogan Page. OECD ( 1992) 'Recent developmentsin self employment', 4, Employment Outlook, Paris: OECD. Rainnie, A. ( 1989) Industrial Relationsin Small Firms: Small Isn't Beautiful, London: Routledge. Scott, M ., Roberts, 1., Holroyd, G. and Sawbridge,D. ( 1990) 'Management and industrial relations in small firms', Department of Employment, ResearchPaper No. 70. Stanworth, J. ( 1988) 'Socia economicfactors in franchising', Paperpresented at the Worldwide Economic Situations and Franchising Development Conference,Pisa, Italy. Stanworth, J. and Gray, C. ( 1991) Bolton 20 Years On: The Small Firm in the 1990s, London: Paul Chapman. Storey, D.J. ( 1985) 'The problemsfacing new firms', Journal of Management Studies,22: 327-45. Storey, D.J. and Johnson,S. (1986) 'Job generationin Britain, a review of recent studies', International Small BusinessJournal, 4(4): 29-46. Storey, D.J. and Johnson, S. (1987) Job Generation and Labour Market Change, London: Macmillan. Storey, D.J. and Strange,A. (1992) 'Entrepreneurship in Cleveland:a study of the effects of the enterpriseculture', Departmentof EmploymentResearch Report No. 3. Storey. D.J., Watson,R. and Wynarczyk, P. (1989) 'Fastgrowth businessesin northern England', Departmentof Employment ResearchReport No. 67. Storey, D.J., Keasey, K., Watson, R. and Wynarczyk, P. (1987) The Performanceof Small Firms, London: Croom Helm. Varyam, J.N. and Kraybill, D.S. (1992) 'Empirical evidenceon determinants of firm growth', Economic Letters, 38: 31-6.

Smallfirms and employment 27 Westrip, A. (1982) 'Small firms policy: the caseof employmentlegislation', in D. Watkins, J. Stanworthand A. Westrip, (eds) StimulatingSmall Firms, Aldershot: Gower. Wynarcyzk, P., Watson, R., Storey, D.J., Short, H. and Keasey, K. (1993) Managerial Labour Markets in Small and Medium-sized Enterprises, London: Routledge.

2

Running to stand still The small firm in the labour market John Atkinsonand Nigel Meager

INTRODUCTION The small businessand the labour market With some notable exceptions,the operation of the labour market (both external and internal) has not been a central focus of small businessliterature. The labour market has often featured only peripherally and incidentally in studies addressingdifferent questionsconcerned variously with the formation, financing, survival and growth of small businesses;the characteristicsof their owners and managers; their distinct industrial relations patterns; and their technologicaland product market environment. This is not to say that the literature has not been concernedwith issuesof employmentin small businesses.Indeed,sincethe influential American work of Birch (1979), there has been a large body of researchand considerabledebatecentring on the employmenteffects of small businesses,and the contribution or otherwise to national employment growth resulting from a shift in the size structure of industry towardssmall businesses. This debateand its implicationsare comprehensivelyreviewed elsewhere(Storey and Johnson1987), and we do not need to repeatit here. However, three (for our purposes) important points emergefrom this review: • Many of these studies have adopted a 'macro' perspective,albeit often broken down by industry, occupation,or region, in attempting to estimate the likely contribution of small businessesto employmentgrowth. They have not generally beenconcernedwith the nature of the jobs so generated. • Their concernwith start-upsand entrepreneurshiphas led them to placeinsufficient emphasison the employees(as opposedto ownermanagers)of small businesses.

Runningto standstill

29

• Thesestudiesare mainly concernedwith labour market outcomes (i.e. net employmentgrowth attributed to small businesses).They are less concernedwith understandinglabour marketbehaviour.As a result they frequently fall back on establishingempirical correlations between factors impinging on the small businessand the observableemploymentoutcome,without due considerationof the processby which such outcomesare generated. Despite the several different answers which such studies have produced,they have tendedto ask the samequestion;how well do small businessesserve the labour market? Thus analysts have continually returnedto the samethemes: • How many jobs have small businessescreated? • What contribution have they made to containingunemployment? • How effectively do they substitutefor the demiseof large corporations as enginesof employmentgrowth? These are important questions, but they represent a somewhat unbalancedperspectiveon the small businessand its labour market. In the researchprogrammeon which this chapteris based,we areconcerned with anotherquestion:how well doesthe labour marketservethe small business?As a result we are concernedwith the following themes: • Under what conditions does the small businessenter and interact with the labour market? • How does it actually decide to recruit labour? • How doesit implementits quantitativeand qualitativelabour needs? • How effectively doesit surmountits employment-relatedproblems? In so far as answersto such questionshave been sought, they have generallyderivedfrom a 'segmentationist' model of the labour market, which tendsto overlook the crucial effectsof diversity within the small businessworld and betweendifferent labour markets.As a result, the main shortcominghas beenthe blanket approachof allocating whole companies(or establishments)to primary or secondarysectors,with the small businessbeing relegated to the secondarysector without adequate investigation. Other approaches to segmentation have tended to consider segmentationwithin, rather than between, businesses.Thus, for example,the work of Osterman(1982) and Atkinson and Meager( 1986) highlights the diversity of employmentexperiences within the internal labour market. Neither study, however, extended its analysisto the small business. In the researchprogrammeon which this chapteris primarily based,

30

Employment,the smallfirm and the labour market

we addressthe questionsoutlined above,with datageneratedthrough six labour market studiesconductedat IMS under the ESRC'sSmall BusinessResearchInitiative. They are derivedfrom a postalquestionnaire survey in spring and summer1990 of 3,289 small businessesin north Cornwall, Shrewsbury, Brighton, Manchester,Newport and Slough.1 This datawas supplementedas necessaryfrom a seriesof indepth qualitative interviews2 during 1991 with 120 small business managersin the sameareas,as well as fifty-five 'intermediary'labour market bodies within the areas. The study includes businessesemploying up to 200 people. This doesnot, however,imply that we acceptthe Bolton Committee(1971) notion that all businesses of this size are 'small'; rather,we are agnostic about the size definition of small businesses,recognizing that what counts as 'small' will vary accordingto many other factors, including the labour market and the industrial sectorin which they are located. We have deliberatelyadopted whatseemsto us to be a generoussize definition, since we are crucially concernedin this researchwith how the labour market behaviourof small businessesvaries accordingto their size, and we thereforeneeda samplewhich includesbusinessesat the 'large' end of the small businessspectrum. In the remainderof this sectionwe set out the key elementsof our approach,providing a conceptualframework with two key elements: • the posingof somehypothesesrelating to the role of businesssize in labour market behaviour,focusing in particular on the identification of size 'thresholds'influencing small businessbehaviour; • the positioning of businesssize in relation to a numberof other key variablesaffecting the ways in which (small) businessesinteractwith the labour market. In subsequentsections we explore the different stagesof the small business'sinteractionwith the labour market. In the secondsectionwe considerthe initial engagementof the small business,and the problems which it encounters,on first entering the labour market. The third, fourth and fifth sectionsare concernedwith the way in which, and the extentto which, small businesses deal with suchproblems:the generation of a managerial framework (both organizational and behavioural) through which the small businesscontrols its employment policies; the recruitment and employment practices which it evolvesto effect thosepolicies in the externallabour market; and the typical patternsof utilization and skill formation which characterize the small business'sinternal labour markets. In the last section we presentsomemultivariate analysisexaminingthe role of businesssize

Runningto standstill

31

against other key variables influencing the experienceof recruitment difficulties. Uneven developmentand thresholdsin small businesses As the starting-pointof our analysis,we considerthe likelihood that as small businessesgrow in size, the rangeand natureof problemswhich bearon them shift and change,but not necessarilyin concertwith their capacity to addressthose problems. This hypothesisis widely discussedin the literature dealing with more general aspectsof small businesses'performanceand management,especially with regard to generalmanagement,financial management,marketing,etc. (see, for example, the work summarized in Curran 1986). We propose to investigatetheseissuesin the context of the small business'semployment behaviour;that is, doesthis lack of synchronization,causedby the general capacity of the small businessto resolve its problems lagging behind the developmentof those problems, give rise to the existence of certain distinctive 'thresholds'in its employment and labour market behaviour? Obviously, if such characteristicthresholdscan be identified and categorized,then the basiscan be built for an improvedunderstanding of the constraintson small businesses'employmentperformanceand for understandingwhich policies (whether supportive or regulatory) might be appropriateto improve that performance.This notion of thresholdsplays a key role in our explanationof why businesssize is an important variable in understandingbusinesses'labour market behaviour. Our initial work on this topic (Atkinson, Meagerand Wilson 1990) hypothesizedthat, so far as the labour market is concerned,there are four crucial thresholdsthrough which small businessesmust pass if they are to grapple successfully with their labour market. The subsequentanalysis of our full results has led us to revise these thresholds somewhat, and in particular the notion that they are necessarilysequential.Nevertheless,the basic typology of the four thresholdswith which we will be concernedis unchanged,as follows: • The entry threshold.The decisionto take on any employeesat all is one which all small businessesmust take. Clearly, for a selfemployedindividual to take such a step (perhapsdoubling his/her labour input) is a step many self-employedput off by deploying casualworkers and family workers, buying in professionalservices, working longer hours themselves,etc. By definition, this threshold

32

Employment,the smallfirm and the labour market

is at zero employees,but the reticence towards taking on staff appearsto extend considerablybeyond the initial commitment. • the delegation threshold lies at that point where the necessityto manage a work-force effectively outstrips the capacity of the owner-proprietor-solemanager,requiring the evolution of some form of managerialhierarchy.Clearly, somesmall businessesbegin to approachthis thresholdearly, but in many others it is deliberately put off preciselyin order to maintainproprietorialcontrol, far beyond thesize at which delegationwould be advantageous. Unlike the entry threshold,we shouldnot expectto locate this thresholdat a precisepoint; not only do differently-structuredbusinesseshave different requirements at different sizes, but also this transformation is itself gradual, and the point at which quantitative changebecomesqualitative changeis impossibleto discern.Nevertheless,the ability to implementsucha transitionis hypothesizedto be an importantcriterion for small businesssuccessin, and beyond, the labour market. • The formalization threshold comes at that point where the complexity of the organization,and the scaleof recruitmentneededto feed it, require a shift from informal and ad hoc proceduresto systematiconesin orderboth to organizethe internallabourmarket and to addressthe externallabour market effectively. Since many large businessesstill find it convenient to retain some informal practices,particularly when recruiting, then we should again not expect to find clear cut-off points corresponding to the unambiguousonset of more coherentplannedprocedures. • The functional threshold comes at the point when the business institutes a professionaland specialist personnelpolicy and dispenseswith, or at least overhauls and significantly modifies, its previousemploymentpractices.So far as its employmentpractices are concerned, beyond this threshold the small business has effectively acquired the characteristicsof a large business.It has entered into a formal, continual, market relationship with the labour market, which is managedby devotedspecialistmanager(s), accordingto more or less overt rules and procedures. There have been a number of previous attempts (Greiner 1972; Churchill and Lewis 1983; Scott and Bruce 1988; Chell1990)to model the various stagesof firms' growth. In the last of these,we also find a notion of crisis, giving rise to adjustment,giving rise to further growth. However, our model is certainly less ambitiousthan these,as it seeks only to illuminate labour market behaviour, and not the entire

Runningto standstill 33 portfolio of corporatebehaviour.However, the applicationof such a schemato the real world requiresmuch qualification, and it has been suggested(Hall 1991) that few modelsof this type can encapsulatethe diversity demonstratedby small businesses. It is important that the thresholdssuggestedaboveare not madeto bear more weight than they should. In particular, although we had originally conceivedthesethresholdsas definite, identifiable points on an employment-sizescale, our subsequentinterview-basedresearch with small businesseshas led us to question the validity of such a characterization. Certainly, small businesses do not think of themselvesin such terms.Thus we will treat these thresholdsin the analysiswhich follows as indicatorsof a broad,certainly not even,and not alwayssequential,processof evolution and transformation,which growth brings with it, and which can hardly be avoided. Important though it undoubtedlyis, employmentsize is clearly not the sole determinantof typical small businesspractices.Thus, in the next section,we set out a wider framework, which placesbusinesssize alongside a range of other key variables to be incorporatedin the subsequentempirical analysis, where we evaluate the interplay betweenbusinesses'generalemploymentpractices;the scale of their operation;their managerialstructureand practices;their ageand stage of evolution; their legal form; their sectoraldistribution; and different labour market backgrounds.Nevertheless,so far as employmentrelated issues are concerned,and particularly those related to the externallabour market,we will argue(seeparticularlythe last section) that size is the dominantexplanatoryvariable. Of course,it must be recognizedthat there are major methodological difficulties associatedwith inferring what areessentiallytime-series relationshipsfrom a cross-sectiondata set, such as that used in the researchreported here. This is particularly problematicalwhen the populationunder examinationchangesin composition,as is the case with small businesses, which are known to havehigh 'deathrates'.Our survey did not seek much information on past growth of output or turnover. This was wholly due to our scepticismaboutthe validity of responsesto such questionsover an extendedperiod in the past. We did, however,seekinformation on employmentand turnover levels a year beforethe survey,but we do not considerthis a suitableor strong proxy for distinguishingbetweenthe behaviourof supposedly'growth' and 'non/growth' businesses,and do not use it in this way in the analysiswhich follows. We are concerned to examine hypothesesabout the changing behaviourof small businessesas they grow in size, but we can examine

34 Employment,the smallfirm and the labour market theseonly with a cross-sectionof businessesof different sizes.In simple terms,thereis no way of ensuringthat the 'large'small businessesin our Indeed, sampleare simply largerversionsof the 'small'small businesses. it is extremelylikely that they will not be,sincethe sampleof 'small'small businesseswill include some businessesthat will never become'large' small businesses, otherswhich wereoncelargeandhavesincecontracted, and still others which will 'die' in the processof growing. Differences betweenthe labour market behaviour of businessesin different size groups, therefore,may not simply be the result of behaviourevolving with growth, but may also be dueto the different size groupscontaining different 'types'of businesses.Whilst suchproblemscan be avoidedonly through the use of a cohort or panel sampleof businesses,they can be minimized by ensuring that, where possible, we control for other variables(suchas sector,and age of business)in the size analysis. A framework for analysis

The focus of the present study, the 'dependentvariable' in a very generalsense,is the way in which the small businessinteractswith and behaveswithin the labour market - what determinesits employment practicesand policies, and its experiencesin the labour market?Given the rationalefor the study - an investigationof small businesses,and an attemptto identify the sensesin which 'smallness'(and degreesof smallness)are relevantfrom a labour market point of view - it is clear that business size must be included as one of the key possible influenceson employmentbehaviour,to be investigatedin the study. It is important to recognize first, however, that size~ albeit important given the focus of the study, is by no meansthe only factor impinging on a business'slabour market/employmentbehaviourand performance.The evidenceof previous researchsuggeststhat many other characteristicsof the businessand its environmentare likely to be relevant here. Second, it is important not · o assumethat any causal influence operatesonly in one direction - that is to say, from businesssize to employmentbehaviour.There may also be influencesthe other way, with the employmentpracticesand behaviouradoptedby a business affecting whetherit grows in size, and the speedand compositionof that growth. Indeed,it is implicit in the notion of 'growth thresholds' set out above,that a business'sability to crosssuchthresholdsmay be crucially dependent on the policies and managementpractices it adopts(in the employmentfield as well as in others). Figure 2.1 attempts to capture these points in simple schematic

Runningto standstill

35

for giW!tl firm Age ot firm 1/ttriab-le fca o~ven

firtn

... .....

Figure 2.1 Characteristicsof firm

form - indicating a range of businesscharacteristicslikely to be relevant in affecting employment behaviour, and indicating that in manycasescausalitywill not be unidirectional.We haveidentified five broadfactors or types of factor which, existingevidencesuggests,may be relevant here. Three of these factors are in some sense predeterminedfor any given business: • The age of the business.Whilst ageof businessmay be correlatedto a certainextent with size of business,we might expectage to exert an independentinfluence on employmentbehaviour, policies and practices,if only becauseof the likelihood of learning from past experiencesof interactingwith the labour market. • The industry or sectoroccupiedby the businessis likely to be highly relevant here, influencing both the types of labour recruited, the competition for that labour, and the internal deployment and utilization of staff. Of course,single ownersmight have a portfolio of different businessinterests,and/or may move betweensectors

36

Employment,the smallfirm and the labour market

speedily, but we are concernedwith firm-specific behaviour, and this is largely sectorallyfixed in the medium term. • The characteristics of the business'sowner-proprietor-manager. Thereis a wealth of previousevidencesuggestingthat the behaviour and managerialpracticesadoptedby small businesses(in general, but including the approachto employment)are likely to be strongly influencedby the personalcharacteristicsof the owner-proprietormanager.There is an enormousrangeof variableswhich have been investigatedin the previous literature, including education,experience,social classand family background,gender,as well as a range of psychologicalvariables. Indeed, this is one of the most heavily researchedareasin the small-businessliterature. As a result, whilst including it in our simple conceptualschemafor completeness' sake, we do not focus to any great extent on this aspectin the present study. Rather,we give more attentionto a set of factors which may be partly a corollary of these personalcharacteristics,namely the managerialapproach,structure and professionalismexhibited by the small business(see below). The other two factors are more variable, in the sensethat they may evolve or changeover time within a given business: • The first of theseis the size of the businessitself which, as we have suggested,as well as being an influence on the business'slabour market behaviour, may also be influenced (in either direction) by that behaviour. • The secondis the managerialapproachandorganizationalstructure the businessadoptswhich, as well as evolving with time and being influenced by the characteristicsof the owner-proprietor, will heavily condition the business'slabour market behaviour (the extentto which recruitmentand otheremployment/personnel issues are delegatedto professionalmanagersrather than being retained within the proprietorialremit might, for example,be expectedto be important here). It is with these five factors that we will mainly be concernedin the substantivesectionswhich follow. In particular, we will be concerned with employmentsize, and the extentto which it may be the dominant explanatoryvariable.Thereare severalreasonsfor this focus. In so far as we are able to disentanglethe separatecontributionswhich eachof thesefactors undoubtedlymakesto the small business'sexperiencein the labour market, employmentsize appearsto be the dominant one. As the multivariate analysisin the final sectionshows,size is the most

Runningto standstill 37

------ --:

Age of firm

. .. ·-- -=-- - -...:

.... ... ...

:Labour

~market

....

-~-=-..::s;.::egmentationl; ~··

:ize of firm

' ,,.· .··

.·

Industry/sector / "', .•. ··· • . .... , and \ •.... · · · d~_gree nature of competition

Institutional/ legislative/policy : : \ ; regime ....................__.

Characteristics ,

1 owner/proprieto character

----=-- ----..

.· .... ..:.. __

...

............. ,................. . ~!

.· .· .·

;

•• ..•. manager '• I

··./

Managerial approach and professionalism

-------- -

Figure 2.2 Environmentalcharacteristics

powerful determinantof the likelihood of experiencingdifficulties in attractinglabour to a given firm. Second,size doesappearto operate strongly on the other four variables;as we will show, the development of a managerialstructureis itself strongly influenced by size. Third, of growth, and size is in a very real sensethe inescapableconsequence in so far as small businessesgrow into larger ones,the one feature of their experiencewhich they are least able to avoid is the necessityto managea larger work-force. It should be notedthat thesefactors are not the only oneswhich are likely to be important in this respect.The influence of thesevariables on the small businessis likely to be mediatedby a numberof factors reflecting the characteristicsof the environmentin which the business operates. These will be both institutional characteristics,in the broadestsense,as well as labour market characteristics,and they are shown in Figure 2.2. The four environmentalcharacteristicsare as follows:

38 Employment,the smallfirm and the labour market • First is the balance betweensupply and demandin the external labour market as a whole. We may expect that any disadvantages experiencedby small businessesin competing for labour in the market will be magnified by tight labour market conditions and mitigated as the market slackens. • The characteristics of that competition are also important. The extent to which competingbusinessesare likewise small, the extent to which they are operatingin similar occupationallabour markets and in similar product markets,greatly affects the labour market experienceof a particular small business. • The policy regimewhich the small businessencountersin the labour market is also an importantaspectof its externalenvironment.The degreeto which that regime aims to assistthe small business,and the extent to which it is successfulin so doing, clearly influence the experienceof such businessesin the labour market, as well as the product market, which is the more usual focus of attention. However, in addition to this 'active' policy regime, there are also other characteristics of the institutional environment which influence small businesses,such as fiscal, legislative and regulatory requirements. • The physical character of the small businesss environmentis the final influence on employmentpracticesand experience.Our main concern here is the urban/rural contrast in small businesses's operatingenvironmentsand labour markets. Thesefour factors are the subjectof a chapterin a companionvolume to this one, and so they will not be the subjectof undueattentionhere.3 Nevertheless,they should not be overlookedin coming to an understanding of why small businessesbehave as employers in the way they do.

SMALL BUSINESS ENGAGEMENT WITH THE EXTERNAL LABOUR MARKET For a large concern, engagementwith the external labour market tends to be a routine and day-to-dayprocess,built around two more or lesscontinuousflows of workersinto and out of the organization.It is a processwhich is likely to be highly regulated,with fairly clear and objective definitions about the number and nature of the vacancies, the characteristicsrequired of applicants,the criteria by which these will be assessed,and the ways in which applicants will be sought. Furthermore,it is a processlikely to have been designed by, and

Runningto standstill

39

probably implemented by, specialist managerswithin the organization, in the light of a more or less robust view of the organization's needs,and the capacity of the labour market to supply them. Above all, it is a processinformed by the experienceof fairly continuous engagementwith the labour market. For the small business, this engagementis radically different. Simply on accountof the arithmeticof stocks(currentemployees)and flows (recruits and/orleavers),the processis likely to be irregular, less predictable,and less capableof systematization.Moreover, any single incident of recruitment is likely to be a more important event (in relation to the size of the stock) than for a larger organization.Thus, leaving aside any considerationof relative weight in the external labour market, the smaller a businessis, the more critical is its engagementwith the externallabour marketlikely to be, and recruitment is likely to be the most critical aspectof it. A difficult entry to the labour market

Our survey data shows that the regularity of recruitmentis directly related to the employmentsize of the business.Figure 2.3 showsthat amongour survey respondentswith fewer than five employees,about half had not sought to recruit in the year prior to the survey. The possibilitiesfor this kind of abstentiondecline very rapidly with size, however,such that fewer than one in ten of our respondentswith ten to fourteen employees had no experience of recruitment in the previous year. Among the larger businesses,the proportion who had not recruited was negligible. Comparisonsof turnover rates betweensmall and large businesses frequently point to the relatively higher levels of turnoverexperienced by small businesses.This may be attributed to employee dissatisfaction with conditions of work (Curran and Stanworth 1981), employer dissatisfactionwith recruits (Scott et a/. 1989), or product market volatility (Blackburn 1990). However, the rate of labour turnover in very small firms is so strongly influenced by the denominator, the stock of existing employees,that its usefulnessis undermined.4 For this reason, our analysis turns not on the rate of recruitment,but on the instance(s)of recruitment. It would appearthat the necessityto recruit is forced on businesses as a simple consequenceof their size. Among small businesses,as the size of the employment stock increases,so also does the need to recruit, if only to replacewastage.Obviously, the rate of recruitment will vary according to specific differences betweenexternal labour

40

Employment,the smallfirm and the labour market

Per cent of firms having not recruited in past year

1-4

5-9

10-14

15-19

20-9

30-49

50+

Employment size (headcount basis)

Figure 2.3 Recruitmentactivity in past year by size (n=2,983)

market conditions, and from business to business, So, too, the compositionof that recruitmentwill vary from sector to sector. But nevertheless,although each individual recruitmentdecision becomes increasingly marginal with size, recruitment itself becomesincreasingly inescapable. It also becomesincreasinglyproblematic.We will show below how recruitment practices and conventions change to implement the increasing scale of recruitment·which a larger stock requires. Yet despitethe efforts undoubtedlymadeby our respondentsto copewith this need,a further consequence of size is the increasinglikelihood that the businesswill encounter one or more employment-relatedproblems. We can illustrate this by looking at recruitmentactivities. Figure 2.4 showsthat amongthosewho had attemptedto recruit during the past year, the incidenceof recruitmentdifficulties experiencedrises, albeit not continously, with size.5 The likelihood that recruitment activity will entail some kind of difficulty virtually doublesfrom our smallest to our largestrespondents.Of course,part of this effect is undoubtedly simply a matter of the frequency of recruitment instances,i.e. as a bigger small businessrecruits more peoplefor a given rate of labour turnover, its chancesof encounteringa difficulty are greater.This is

Runningto standstill 41 Percentage

0-1

2-4

5-9

10-14

15-19

20-9

30-49

50+

Employment size (headcount basis)

Figure 2.4 Firms experiencingrecruitmentdifficulty (recruitersonly)

almost certainly true, but is hardly a sufficient reason. A more compelling one is concerned with the nature of the recruitment decision, and the mannerin which it is taken forward. Our case-studyinterviews suggestthat for the very smallestbusinessesthe availability of a known individual is virtually a precondition for recruitment.They are inclined to take on the proprietor'sspouse, other family members,establishedcontacts,etc. For them, vacancy notification, search and selection are not always (or indeed often) sequentialphasesof a recruitmentdecision. Rather,the availability of a suitable individual is almost a preconditionfor the vacancy being declared in the first place. With size, and growing formality of recruitment methods, this is less possible, and businesseshave to develop more systematicapproaches,which we discussbelow. However, recruitmentdifficulties are not the only criterion against which we might wish to evaluatethe sufficiency of the small business's labour supply. If we look at employmentproblems involving wider concerns than just narrow recruitment, and so bringing in nonrecruiters as well, we can see in Figure 2.5 that the incidence of employment-relatedproblemsand of recruitmentare directly related, and both vary positively with size. Our surveyrespondentswere asked to indicate what were the main problemsconfronting their business, and how important such problemsmight be. We soughtinformation on six different employment-relatedquestions(availability of labour,

42

Employment,the smallfirm and the labour market

Per cent of firms having not recruited in past year

Per cent for whom labour problem very important

60

70

50

.....

40

............... ' .............. . . . . . . . . . . . . . . . .. .. .... -

30

Not recruited in past year

60

50

Labour problem

20

40 10

1-4

5-9

10-14

15-19

20-9

30-49

50+

Employment size (headcount basis)

Figure 2.5 Recruitmentand incidenceof labour problemsby size

quality of available labour, retention/turnover,pay levels, induction and training costs, and industrial relations), but for the moment, in Figure 2.5 they are condensedinto a single indicator of the existenceof one or more very important employment-relatedproblems,according to the employmentsize of the business.Here we can seein a very stark and immediate form the discouraging perspective awaiting small businesseswho wish to move beyond the entry threshold: as the necessityfor them to engagewith the labour market rises, so doesthe likelihood that they will encounter important employment-related problems.For businesseswith fewer than ten employees,both curves are extremely steeplysloped and, as a result, quite small increasesin employmentare likely to entail a disproportionateincreasein the risk of experiencingsuch problems. Running to stand still

We should note a further featureof Figure 2.5: althoughthe 'incidence of employmentproblems'curve flattens out a lot beyondabouttwenty employees,it does not markedly fall; at best, employment-related problems are contained,they are not overcome.It is reasonableto concludethat a businesspoisedto grow from a very low basewill not

Runningto standstill 43 only experiencethe very rapid onset of employmentproblems, it is also unlikely ever to get on top of them while it remainssmall. We will examine in detail below the attempts made by small to graplemore successfullywith this growing needto engage businesses with the external labour market. For the moment;we should simply note that they do not succeedin reducingthe incidenceof employment difficulties markedly. This would suggestthat businesseswith fewer than fifty employees,having passedour entry thresholdand begunto engagewith the labour market, might well be passingthrough our delegation,formalization and functional thresholds,but to little effect so far as their experienceof employmentproblemsis concerned. However, it may be that such effects are lagged;that is to say, they become apparent only among businesseswith more than fifty employees.Or it may be that while such transformationsin small businesspractice are necessary,they are not sufficient, and that some altogetherdifferent factor is also at work. See,for example,the role attributed to inter-firm occupationalpay differentials in Brown and Medoff (1989) and Thompson and Wilson (1991). In addition, we shouldrecall that the datawas collectedat the end of the 1980s'boom. Commonsensewould suggest,and our subsequentinterviewsconfirm, that financial- and market-relatedproblemshave becomemuch more prominent with the onset of recession.Conversely,the incidence of employment-relatedproblemshas reduced,as labour demandwas cut and labour marketseasedduring the early years of the 1990s. In orderto examinethe possibility of a delayedeffect, we can call on a rather larger, and more recent, data set to show that these characteristicpatternspersistduring recession.In summer1991, IMS undertooka seriesof surveysfor the Adult Literacy and Basic Skills Unit (ALBSU), as the first stage of a study to assessbasic skill provision in forty-two Training and EnterpriseCouncil (TEC) areas. Inter alia, respondentswere asked about their experienceof recruitment problemsduring the previoustwo years.They were askedabout the incidenceof problemsof getting enoughapplicants,shortcomings in the skill or qualifications of applicants, and shortcomingsin the experienceof applicants,and also about how serioussuch problems were. This dataset containsa far wider set of establishmentsizesthan does the previousset, and so can be usedto assessto what extentthe severity of theseemploymentproblemsdeclineswith size, beyondour fifty-employee size-band. The incidence of serious problems, of experience,skills/qualifications, and few applicants,is shown in Figure 2.6. We can see that below about fifteen employees, the incidence of such problems

44

Employment,the smallfirm and the labour market

generallyincreaseswith size, and that betweenabout fifteen and fifty, it stabilizes. Thus far it matches and confirms the data presented above. However, we can also observethat above fifty employeesa slow but fairly consistentdeclinesetsin, suchthat establishmentswith about five hundredemployeesshow a lesserincidenceof such serious problems,as do thoseat the other extreme,the very smallestwho are just beyond the entry threshold. We can draw two conclusionsfrom this. First, this characteristic pattern is not simply a function of tight labour markets, although theseundoubtedlyintensify it, but rather one of widespreaddifficulty in managinga growing interaction with the labour market brought about by the need to feed the labour requirementsof the business. Second,such difficulties are overcomeonly very slowly; in all three cases,the relatively low importance of these problems among businesseswith fewer than five employees(which itself is attainedlargely through abstentionfrom the labour market) is only regainedamong establishmentsof between100 and 150 employees. Further analysis of the intensity, as well as the incidence,of these three types of employment problem is possible by distinguishing betweenthoseestablishmentswho report 'serious'problemsand those reporting 'occasional'problems.This distinction is shown in Figures 2.7, 2.8 and 2.9. These are concernedwith 'experience'shortfalls, 'skill/qualifications' shortfalls, and 'few applicants' shortfalls respectively. In each case the incidence of serious problems is measured on the left-hand axis, and shown in bold; occasional problemsare measuredon the right, and shownin mediumtype. These chartsshow that it is generallythe severityof the problemsthat decline with size, rather than their existence. Having climbed quite steeply among our smallest establishments, the incidenceof theseproblemsremainsfairly stableacrossvery large differencesin size. What falls away is their seriousness.In one sense this is hardly surprising, as the bigger an establishmentis, the more staff it is likely to be recruiting, and in consequence the greateris the chancethat it will 'occasionally'hit one or more of these problems. The declinein the seriousnessof suchproblemssuggeststhat although they continue to experience these problems, such businessesare increasinglysuccessfulin managingtheir interaction with the labour market. For small businesses,it is this combination of a rapid onset of employment-relatedproblemswith an inability to eradicatethem that gives a special character to the incidence of employment-related problems,comparedwith other types of problem they face. Thus we

.. .. . .·

.·... ·. ·.

····· ......

5-9

10-14

15-19

20-9

. .. .............·..·· .· ·.

·..... ·

No applicants

.··

.· .··

Applicants lack skill/qualifications

Applicants lack experience

Establishment size

30-49 50-99 100-49 150-99 200-49 250-99 300-49 350-99 400-49 450-99 500-999 1,000+

..

Figure 2.6 Seriousrecruitmentdifficulties by size ALBSU survey data (n=l2,000)

1-4

00-L-,,----.-----.~~.-----.----+-----.----.----..----.-----.----.----..----.-----.----.-----r--

2.5

5.0

7.5

10.0

12.5

15.0

17.5

Percentage with serious problems 20.0

I

1-4

I

I

5-9

I

I

I

I

I

I I

I I

I I

I I

I I

I

I

I

I

I

I

I

Serious problems

I

I

I

I

I

I

Occasional problems

I

I

I

Employment size

20

30

40

50

60

Percentage with occasional problems

200-49250-99300-49350-99400-49450-99500-9991,000+ 10-14 15-19 20-9 30-49 50-99100-49150-99

I

Figure 2. 7 Incidenceof shortfalls in experienceby size

6

8

10

12

14

16

18

Percentage with serious problems

Occasional problems

Serious problems

Figure 2.8 Incidence of shortfalls in skill/ qualifications by size

Employment size

30

40

50

60

Percentage with occasional problems

0 ~-r~~~~,-~-r~~~~~~~~-T~~~~,-~~~~~~~,--r-r-T--~~~~-t-20 5-9 10-14 15-19 20-9 30-49 50-99100-49150-99200-49 250-99300-49350-99 400-49 450-99 500-9991,000+ 1-4

5

10

15

20

Percentage with serious problems

I

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1-4

I

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I

I

•

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Occasional problems

Serious problems

Employment size

1o

20

30

Percentage with occasional problems 40

I I I I I I I I I I I I I ' I I I I I I I I I I 20-9 30-49 50-99100-4915 0-99200-49 250-99300-49 350-99400-49 450-99500-9991,000+

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Figure 2.9 Shortfalls in number of applicantsby size

4

6

8

10

12

Percentage with serious problems

Running to standstill

49

note that among the panoply of problems confronting the small business,employment-related problemsbecomerelatively moreprominent as the size of the organizationincreases.This is shown in Figure 2.10, which returnsto our ESRCdatabase.Here we have reducedall fifteen of the problemson which we soughtinformation to four broad categories: 'labour' (as above), 'administrative'(legislation, official regulations paperwork, etc.; premises;availability/easeof accessof business advice; availability of material, supplies, etc.), 'financial' (interestrates,raisingfinance and capital, etc.; cashflow; tax burden); and 'market'(overall demandfor business'sproducts/services; competition from other business).We observethat in mid-1990, financial problemsremainthe most widespreadamongall sizegroups,although their incidencestarts high and does not subsequentlyvary greatly by size. The existenceof market problemsrisesfairly consistentlyby size; beyond twenty or so employees,however, our businessesseemto be coming to grips with their administrativedifficulties. Labour problems are atypical; from a very low start, which is associatedwith virtual abstentionfrom the labourmarket,a very steep and sharpincreasein the chancesof experiencingtheseproblemsis the inescapableconcomitantof size, such that for businessesemploying betweenten and fifty employeesthey are the secondmost prevalent type of problem. It would seemthat for businessespoised at the entry threshold,the path aheadis both steepand rocky. They will be drawn into the labour market as a by-product of the developmentof the business,and are unlikely to avoid the employment problems which this trajectory brings with it. We go on now to examinehow their typical personnel practicesdevelopwith size, in responseto the requirementsof a more continuousengagementwith the labour market,but we note herethat theseresponsessucceedonly in containingthe growth of employmentrelated problems. As a result, not only is the growing small business unlikely to avoid theseproblems,but it is also unlikely to overcome them while remainingsmall.

MANAGING THE ENGAGEMENT WITH THE LABOUR MARKET: DECISION-MAKING AND THE EMERGENCE OF A FUNCTIONAL STRUCTURE We have argued that growth thresholds may emerge from the interactionof two factors, both of which are likely to evolve with firm s1ze:

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0-1

2-4

10~----~----------~---------r--------~~--------

20

30

..

5-9

Employment size (headcount basis)

10-14

...

•••• A

A

30-49

••••••••••••

• • • Administrative problems

Market problems

. .---------.r---------~----------~ 20-9 15-19

Figure 2.10 Type of problemsperceivedas very important by size (n=2,983)

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