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  • Small Firm Diaries Team

Are Small Firm Jobs Good Jobs?

A man using a sharp instrument and a rock to make a spoon out of bamboo

Increasing the number and quality of jobs is a high priority in most developing countries. The ILO estimates that MSMEs (which they define as firms from 0 to 250 employees) generate more than 50% of the jobs in most countries, and up to 90% of the jobs in some.  

But understanding these jobs at a deeper level—exactly how many there are, how much they pay, the proportion of them in various firm sizes—is very difficult. Estimates of the number of jobs that MSMEs provide typically come from household surveys (not ideal for understanding firm-level measures of employment), and the few that are from firm surveys have a variety of sample and estimation challenges. None of these estimates reveal anything about the nature of the jobs, including such key measures of job quality as pay rates, permanence, and outcomes. 

A key aim of the Small Firm Diaries is to shed light on employment in small firms, including a better understanding of who the workers are, and the quality of jobs in the small firm sector. The Diaries include data on employment from the firm’s perspective (e.g. number of workers, the individuals employed, how they are paid, management practices and challenges), and from the worker’s perspective (we survey one worker per firm to understand their household income, employment history, and more.) 

The Small Firm Diaries reveal important facts about employment in small firms: 

  • The number of jobs in a firm changes from month to month.

  • The people filling those jobs change frequently.

  • Workers are largely drawn from a distinct pool whose primary income is from working in small firms (e.g. the workers do not report running their own microenterprises before, nor an expectation of microenterprise as an alternative in the future, nor in larger firms when not employed at the small firm).

  • Worker pay varies considerably even during the months they are working at a small firm.

These facts suggest that one-time household surveys and firm surveys obscure important and policy-relevant details of this major source of employment. 

Variable income and unstable employment

Once we began to understand the extent of the volatility and risk facing small firms, we wondered how much the firm bore the brunt of those ups and downs (by decreasing firm owner pay, or shrinking the size of the business, for instance) or whether it was passed on to the workers in the form of unstable employment and precarious pay. 

We found that across the study, firms are not able to provide consistent income to workers. The number of jobs they offer over the course of a single year varies a great deal. 

In Nigeria and Colombia, just over 20% of workers were paid for 8 or more months during the study, respectively. In Kenya and Indonesia, many firms had one key worker who was paid in at least 8 months of the study (49% and 43%, respectively, of workers were paid at least 8 months).

Even for “long-term workers,” defined as those who are paid by the firm in every month of the study, the amount they are paid month to month is very volatile.

This chart uses the coefficient of variation (a statistical measure of variability in a dataset) to show that there is only slightly lower variation in payment amount for longer-term workers compared to more occasional workers. Even these long-term workers, which make up about 30% of the global sample, typically saw their pay vary each month more than 30% from their average. (Note that Fijian data here differs from the norm because Fijian firms had fewer workers and more frequently closed. Only 4% of Fijian firms had workers who were paid more than 8 months out of the study.)

We also see these fluctuations in workers and payment amounts illustrated by worker payments for a single firm.

During seven of the months of the study (months 3, 4, 5, 6, 7, 8, and 9) this firm pays three workers (but they are not consistently the same three people from month to month). During three months of the study (months 10, 11, and 12) the firm pays just 1 worker. The orange line shows the firm’s single "core" worker, who was paid during all ten months, while the other workers have shorter spells of working at the firm—of seven months, five months, and two months. 

Vulnerable Workers

The volatility of worker income from the small firms appears to matter a great deal to the workers’ households, as many workers in the study tell us that they struggle to meet basic household needs with the income they earn.

Two-thirds of workers in Nigeria and Kenya said that they lacked money to meet their basic or food needs at some point during the study, half of workers did so in Indonesia, and a third of workers did in Colombia.

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