Small Enterprises, Big Challenges: A Literature Review on the Impact of the Policy Environment on the Creation and Improvement of Jobs within Small Enterprises

A conducive policy environment is increasingly seen as an important factor in enabling small enterprises to create more and better jobs. 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.
Small enterprises make undoubtedly a huge contribution to employment. 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. 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.