Synthesis documents

A literature review on the impact of the policy environment on the creation and improvement of jobs within small enterprises, Reinecke/ILO, 2002

    This paper summarizes available literature on the quantity and quality of employment in small enterprises and the policy and regulatory environment these enterprises face and work in. It also deals with the limited available evidence on the impact of the policy and regulatory environment on employment in small enterprises. The main focus is on developing countries.

    Summary of results
    Small enterprises make undoubtedly a huge contribution to employment, especially in the developing world. The available data and studies show that in many countries, the share of small enterprises in total employment has been growing over the last decades. However, further research is required as to which type of enterprise creates most employment, as an increasing share of small enterprise employment might just reflect the downsizing of larger enterprises rather than employment creation by smaller ones.

    Despite small enterprise support policies in many countries, the overall economic policies are still often biased in favour of larger enterprises. The cost of registering and complying with regulations, relative to the enterprise's turnover or profits, is often higher for small enterprises than for larger ones. Even though small enterprises may often lower their costs by evading tax and labour obligations more easily than larger ones, this may imply constraints on the access to markets, credit and services.

    Generally speaking, the literature does not support the view that labour regulations are an important constraint for small enterprises. Additional insights are needed on how labour regulations may contribute to the twin objective of creating employment and raising employment quality. While there is consensus about the advantages of having clear regulations and a transparent and fair process of implementation, the employment impact of different types of policy and regulatory environment has not been studied sufficiently. This is a field where further research is necessary.