Average firm size

A final indicator of firm size used in the OECD firm-level project is the average number of employees per firm. Table 3 shows the average number of employees per firm for New Zealand and other OECD countries from the firm-level project. The New Zealand data have been adjusted in the same way as for the previous two comparisons.

*Private sector only. Note that if public sector is removed from the NZ data, the average number of employees per firm drops to 11.6.

Sources: Statistics NZ and OECD/Bartelsman et al 2003

Once again, the pattern is similar to the previous two indicators of firm size. New Zealand has a higher average number of employees per firm (13.7) than do Finland (13.0), Italy (10.0) and the Netherlands (5.8) – though again zero-employee firms have been included for the Netherlands data. However, New Zealand has a smaller average number of employees per firm than Denmark, Portugal, the USA, Germany, France and Canada. The differences in most cases are not very great, although the USA and France in particular have a high average number of employees per firm (25.6 and 33.2 respectively). Data caveats again apply to the figure for France.

Table 3 also shows particularly clearly the impact that measurement issues can have on indicators of firm size. When zero-employee and one-year firms are removed from the New Zealand data, our average firm size stands at 13.7 employees per firm, whereas when these firms are left in the data (as they have been in previous studies), average firm size drops to 5.6, the lowest of the countries shown in the table.

Sector comparisons

The above comparisons of firm size relate to the economy as a whole. However, it may also be of interest to look at how firm size compares in different sectors. Skilling (2001) presented data to suggest that New Zealand firms were particularly small in the manufacturing sector, relative to manufacturing firms in other countries. While Skilling’s (2001) comparisons are likely to have been affected by measurement issues, it is of interest to see whether the proposition that New Zealand has smaller firms in the manufacturing sector still holds once measurement differences are taken into account.

Tables 4 and 5 compare firm size in the manufacturing and business services sectors for New Zealand and other countries in the OECD firm-level project. Three indicators of firm size are again shown – the proportion of firms with less than 20 employees, the proportion of employment in firms with fewer than 20 employees, and average number of employees per firm. (The table is ordered in terms of average number of employees per firm, as this indicator shows the cross-country differences most clearly.) Zero-employee and one-year firms have been removed from the New Zealand data.

Sources: Statistics NZ and OECD/Bartelsman et al 2003

Sources: Statistics NZ and OECD/Bartelsman et al 2003

The comparisons in these two tables provide some support for the idea that it is particularly in the manufacturing sector that New Zealand tends to have smaller firms than other countries. New Zealand’s manufacturing firms are not the smallest of the countries shown – Italy and the Netherlands both appear to have smaller firms (although again zero-employee firms have been included for the Netherlands data). However, the differences in firm size between New Zealand and other countries with larger manufacturing firms are more pronounced than they were for the total economy data. For example, in the total economy data, the average number of employees per firm in New Zealand was similar to countries like Denmark, Canada, and Finland. In contrast, in the manufacturing sector data, all three of these countries have a noticeably higher average number of employees per firm than does New Zealand (30.4 for Denmark, 27.8 for Finland, and 40.5 for Canada, as compared with 20.0 for NZ).

New Zealand is also towards the smaller end of the size distribution in the services sector, as shown in Table 5. However, the cross-country variation in firm size in the services sector is much less than the variation in the manufacturing sector. As might be expected, firms are also considerably smaller in the services sector than in the manufacturing sector overall.