measured using initial or average size) account for about 60% of the total labor force. Similarly, Genda (1998), using census data of firms with 5 or more employees for Japan, reports that firms with fewer than 100 employees account for over 65% of the total, non-agricultural labor force.<sup>12</sup> In fact, Japan appears as somewhat of an outlier among OECD countries in that SMEs play such a large role. This is confirmed by Criscuolo et al (2014), who place the contribution of firms with fewer than 250 employees at about 85% of the total Japanese labor force.

In contrast to this wide body of findings for developed countries, there are few similarly comprehensive studies for developing countries. The results that are available, however, are fairly conclusive that SMEs are the majority source of private sector employment. Ayyagari et al (2014) provide evidence on this issue using crosssectional data for 104 countries based on the World Bank’s Enterprise Surveys.<sup>13</sup> They show that in low income and lower middle-income countries, firms with fewer than 100 employees (excluding those with fewer than 5), account for over 50% of total employment, but employ less than half the total workforce in upper middleincome and high-income countries. With a higher cutoff size of 250 employees, however, SMEs employ well over half of the total workforce. Similarly, Arrow et al (2014), using quarterly survey data from South Africa<sup>14</sup> between 2005 and 2011, report that firms with 250 or fewer employees account for over 50% of total employment.<sup>15</sup> Underscoring these findings is the well-documented and often-discussed dominance of very small (often self-employed and unregistered) enterprises in these economies (Tybout, 2000). Most available data for developing countries, such as the Enterprise Surveys exclude smaller (micro) and informal firms. Therefore, the contribution of small firms to employment share is likely to be underestimated in analysis using these data Rijkers et al (2014) corroborate this using business registry data from Tunisia, covering firms of all sizes over the period 1996-2010.<sup>16</sup> Strikingly, self-employed workers alone account for about 28% of the total non-farm employment, while firms with fewer than 100 employees account for about 62% of total employment in an average year. Similar results reported for Egypt and the West Bank and Gaza find that firms with 5 or fewer employees account for over half of the total workforce in the private sector (World Bank 2015).<sup>17</sup> Studies using manufacturing census data from Ethiopia and India underscore the effects of utilizing datasets that exclude the smallest firms. Bedi and Shiferaw (2013) use the annual Ethiopian manufacturing

> 12 This is even a conservative measure as taking into account firms with fewer than 5 employee would, therefore, raise this contribution.

> 13 The World Bank’s Enterprise Survey (ES) data is used for 64 of the countries; for the rest of the countries, data is from various sources.

> 14 One of the countries not covered by Ayyagari et al (2014)

> 15 The survey excludes firms that are not required to file for VAT (for instance, in 2009, only firms with a turnover of over one million South African Rand, roughly about $130,000, were required to file for VAT), and hence is likely to underestimate the stock of employment accounted for by the SMEs.

> 16 Though excluding agriculture and co-operatives.

> 17 The study also finds that firms with 100 or fewer employees account for over half of the total employment in all 5 countries where data is available - Egypt, Jordan, Tunisia, Turkey and West Bank and Gaza.

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