Job creation in SMEs

While SMEs constitute more than 99% of European companies and account for about two-thirds of private sector employment and job growth, research on the reasons and constraints for and characteristics of job creation in SMEs is scarce.

Against the background that across the vast and heterogeneous SME population not all SME types are equally dynamic job creators, the project aimed at illustrating the profile of SME job creators and the company internal and external factors influencing employment growth in SMEs. The report also describes the main characteristics of recruitment processes in SMEs and analyses the available public support for SMEs’ job creation. Particular attention is given to ‘born globals’, that is young companies that immediately after inception intensively engage in international activities and have been discovered to be dynamic job creators.

The project comprised a combination of literature and data review, case studies and policy analysis.

Some key findings

While recent data from the European Restructuring Monitor show a balance of job loss and job creation announcements, there has been sustained employment growth in sectors in which SMEs generally account for a large share of employment (for example, professional and administrative services).

Job creation in SMEs is influenced by a combination of factors, both internal to the company and external. SMEs tend to create jobs if they:

  • are young (usually defined as up to five years in existence);
  • are innovative (both product and process innovation seem to matter);
  • operate internationally;
  • are located in urban areas;
  • are run by skilled managers;
  • are competitive and perform well due to sufficient market demand and sound management;
  • have active growth strategies;
  • have sound investment strategies;
  • are able to flexibly adapt to external changes and to internal growth.

These internal company factors need to be matched by external factors, including:

  • a macroeconomic or sector situation that generates sufficient demand, manageable competition and some level of certainty of future developments;
  • a favourable entrepreneurship image;
  • feasible business regulations and taxation;
  • effective public administration and public support;
  • labour legislation and labour costs that are feasible for SMEs;
  • access to external finance;
  • availability of sufficient workers with the required skills in the labour market.

Recruitment is SMEs is conducted rather informally and mainly by the owner-manager, but nevertheless strategically planned. Next to the candidates' qualifications their transversal skills and personality are of particular importance to ensure that they 'fit the team'. SMEs tend to use easy-to-handle and cost-effective recruitment channels, with considerable emphasis on personal and professional networks.

Eurofound’s findings are published as the annual report of the European Restructuring Monitor. A résumé and an executive summary are also available for download.