The number of employees in SMEs grows and their productivity falls

The number of employees in SMEs grows and their productivity falls

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Spanish SMEs face a competitiveness problem due to the low productivity of the companies. According to the Cepyme employers’ association in its latest Indicator on the situation of the SME For the last quarter of 2023, the increase in the number of SME employees only experienced a slight decrease compared to previous quarters. In the fourth quarter, an increase of 2.3% year-on-year was observed, maintaining it for the third consecutive quarter above 9 million people.

This increase in salaried employment was stronger in medium-sized companies (2.7%, reaching 2.68 million employees) than in small companies (2.1%, with 6.32 million employees). However, it is important to note that, throughout 2023, the interannual variation in the number of employees in small companies remained practically constant, while in medium-sized companies it tended to weaken, with an increase of 2.7% in the fourth the smallest quarter since March 2021.

Cepyme points out that if we evaluate the changes in the number of employees over the last four years, from the last quarter of 2019 to the same period in 2023, we notice a significant disparity. The increase in medium-sized companies significantly exceeds that of small ones, with an increase of 7.6% compared to 4.1%, respectively. Overall, the increase for all SMEs was 5.1%.

“The data indicated so far present a significant difference between both company sizes: from the fourth quarter of 2019 until now, salaried employment in medium-sized companies grew by 7.6%, which is practically the same as their sales volumes increased ( 7.5%). However, in small firms, the increase in the number of employees more which doubled that of sales in real terms (4.1% and 1.6%, respectively). This implies a productivity problem in small companies,” the employers’ association points out.

Decreased productivity is an obvious concern. Therefore, although there is an increase in the average size of Spanish SMEs and a slight improvement in profitability, it is crucial to adopt a cautious stance. If the trend of declining productivity persists, both the growth in business size and the recovery of profitability could become unsustainable.

“Productivity, considered in this indicator as the average sales volume per employee, has had three consecutive quarters with year-on-year declines. In the fourth quarter it was 0.7% lower than that of a year before and 1% lower than that of 2019. And, even worse, productivity is now slightly lower than in 2015 and even 4.9% lower than in the fourth quarter of 2011,” Cepyme points out.

Productivity is entrenched

The evolution of productivity is negative in both small and medium-sized companies, although it is more pronounced in the latter. In the case of small businesses, The year-on-year drop in the quarter analyzed was 0.6%while in the medians a decrease of 0.9% was recorded.
Furthermore, from a long-term perspective, productivity in medium-sized companies shows a more unfavorable balance; Since, while in small companies productivity is 1.5% higher than in 2015, in medium-sized companies it is 5.5% lower than in that year.

Cepyme points out that the moving average of the last four quarters of the Net Return on Assets (ROA) reached 3.5% at the end of 2023, four tenths more than a year before. “However, this does nothing more than return this variable to where it was at the end of 2021. Furthermore, the aforementioned 3.5% is an ROA up to two tenths lower than that recorded at any time during the 2018-2020 triennium,” they point out from the organization chaired by Gerardo Cuerva.

The lack of profitability in Spanish SMEs is a problem that affects the entire society. This is reflected in its smaller relative size and entails additional problems such as high unemployment, underutilization of economies of scale, limited innovation and exports, and greater vulnerability. Compared to other European countries, Spanish SMEs show significantly lower profitabilitywhich highlights the need to address this issue to improve its competitiveness and contribute to overall economic development.

Taking the 2021 data, which is the latest available, Cepyme points out that it can be seen that the return on equity (ROE) of Spanish SMEs was 5.7%, less than half that of the profitability of Belgian SMEs ( 14.5%), Austrian (12.6%), Polish (13.7%) and Hungarian (15.7%), to give some examples.

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