This paper assesses the impact of COVID-19 pandemic on small and medium-sized enterprises in Armenia. The analysis of representative nationwide survey data reveals that as compared with large-company employees, SME employees are more affected by the crisis, having been laid off or having reduced work hours and pay. Logistic regression results show that being employed by an SME doubles the likelihood of layoff and pay reduction. There is also support for the hypotheses that employees in sectors which allow for remote work, e.g., education and information and communication services, as well as those who have medium to high professional qualifications, have been less affected by the crisis. The findings call for more targeted government assistance to SMEs and low-skilled workers
Este documento evalúa el impacto de la pandemia de la COVID-19 en las pequeñas y medianas empresas de Armenia. El análisis de datos representativos de una encuesta a nivel nacional revela que, en comparación con los empleados de las grandes empresas, los empleados de las PYMEs se ven más afectados por la crisis, ya que han sido despedidos o han visto reducidas sus remuneraciones. Los resultados de la regresión logística muestran que ser un empleado de una PYME duplica la probabilidad de despido y reducción salarial. También se respalda la hipótesis de que los empleados de sectores que facilitan el teletrabajo, por ejemplo, la educación y los servicios de información y comunicación, así como las empresas que tienen trabajadores con una media-alta cualificación, se han visto menos afectados por la crisis. Los resultados reclaman un mayor apoyo gubernamental dirigido a las pymes y los trabajadores menos cualificados.
The first case of infection with the novel coronavirus in Armenia was registered on March 1, 2020. With the aim to contain the contagion, the Government of Armenia introduced a state of emergency in mid-March, which entailed closure of all businesses except for grocery stores, pharmacies, and banks. By the time most of the restrictions were lifted in early to mid-May, eighteen programs aimed at mitigating the economic and social impact of the crisis were adopted, with a total value of AMD 84.4 billion (4.8% of GDP).
Scholars both abroad and in Armenia have tried to assess the economic and social costs that the pandemic imposes on national economies and the global economy (
This paper aims to make a contribution to the discussion in academic and policy circles by assessing the extent to which the employees of small and medium-sized enterprises (SMEs) have been affected by the crisis. As SMEs account for most of the private-sector employment and value added in both advanced and emerging economies (
The paper is structured as follows. Section 2 below provides a review of the literature on SMEs and recent empirical studies on the impact of the pandemic in various countries. Based on that evidence, four hypotheses on the impact of the crisis on businesses in Armenia are advanced. In the third section, the methodology used for gathering and analyzing primary data is discussed. The fourth section is devoted to the results of data analysis, including both descriptive and inferential statistics. The final section offers a discussion of the findings, main conclusions, and policy implications of the study, as well as its limitations.
Small and medium-sized enterprises (SMEs) are essential drivers of economic growth and development in both developed and developing economies. In Europe, those are defined as
SMEs are often characterized by informality, flat (horizontal), as opposed to hierarchical internal structures, and open and fluid communications between the owners and employees
The RA Law on Small and Medium Entrepreneurship
The third edition of the Eastern Partner countries’ SME Policy Index
The coronavirus pandemic engendered a global crisis that, unlike most other crises in world history, entails both supply and demand shocks. Worldwide, more than twenty million people have been infected as of August 2020, and due to lockdown measures, around 300 million full-time employees have become unemployed or have had a reduction in work hours and pay (
Although both large companies and SMEs have been affected by the crisis, recent reviews (
A McKinsey analysis of several small business surveys in the United States
Some of the reasons why SMEs are more vulnerable to the crisis, as identified in the literature, are as follows:
Based on the reviewed literature, we advance the following hypothesis on the impact of the crisis on businesses in Armenia:
As compared with large companies, SMEs generally offer lower-paying jobs but also account for most of the private-sector employment in a country (
Irrespective of firm size, the effects of the pandemic on employment have been greater in industries that assume proximity, e.g., transportation, trade, arts and entertainment, and food and hospitality. By contrast, employees in services that can be provided remotely (e.g., education, information and communications, finance and insurance) have been less affected (
This paper is based on primary data of a labor force survey conducted in May 2020 by the Paul Avedisian Center for Business Research and Development (CBRD) at the American University of Armenia. The respondents (around half a million employed people) were chosen through territorially stratified random sampling, and the resulting sample size (n=1312) is representative of the entire country.
The survey instrument
SME employment was captured by the eighth question in the questionnaire, which reads as follows:
To establish associations between SME employment and the effects of the crisis, data on the following questions were extracted from the dataset:
Data were analyzed with MS Excel and STATA software. Replication data for statistical analysis are available upon request.
The majority (77%) of respondents are employed by SMEs. Companies having less than ten employees (“micro” enterprises) account for more than half of the employment within the SME category, followed by those with 10-49 employees (see
Around half of the SME respondents (54%) are male, more than a third (39%) are from Yerevan, and a third (33%) are from urban areas other than Yerevan. Similarly, around half of the large-company employees (54%) are male, 65% are from Yerevan, and 23% are from urban areas other than Yerevan. The average age of SME employees is 34 (median=32), the youngest respondents being 18, while the oldest respondent aged 66. More than half of the respondents (60%, n=577 due to missing values) have tertiary education (bachelor’s, master’s, five-year specialization, and postgraduate degrees), and 15% have middle professional and vocational education. The average age of large-company employees is 34 (median=32), the youngest respondents being 19, and the oldest aged 69. The majority of respondents (79%) report having tertiary education.
Source: CBRD survey data
Most (around 60%) of the SME respondents are wage employees, followed by those who own a business (are self-employed, 22%), and those who are in agriculture or horticulture (10%). Around 90% of the large-company respondents indicated that they work as wage employees. As of March 1, 2020, 51% of the SME employees were employed full-time, 10% were employed part-time, 13% report having daily pay, and 17% did not work. The majority (84%) of large-company employees for whom complete data are available (n=205) indicated that as of March 1, 2020, they worked full-time. Wage distribution data (see
Source: CBRD survey data
The analysis of SME data (n=714 complete answers) reveals that 175 employees (25% of the total, males and females) have been laid off due to the crisis, and around half have had a reduction in pay. Men are harder hit by the crisis than women (see
Source: CBRD survey data
Most SME employees think that the crisis has affected their personal finances about as much as anyone else: in this, as well as other regards (more than others/less than others), men tend to emphasize the impact of the crisis more than women. By contrast, 45% of the large-company employees think that the crisis has affected their personal finances
Source: CBRD survey data
Respondents who worked at the time the survey was conducted (May 2020) were asked two additional questions – on the sector of employment and their work title. The majority of SME employees (69%, n=490) report working in services, and 14% report working in industry (including energy) and construction. Within the trade and services (n=340), relatively high shares are accounted for by wholesale and retail trade (17%), education (16%), and healthcare and social work (12%) (see
Source: CBRD survey data
Source: CBRD survey data
Source: CBRD survey data
Notes: Variables measurements: binary (gender, residence 1 and 2, SME, full-time and wage employee), continuous (age) and ordinal scale (income)
Variable | Obs | Mean | Std. Dev. | Min | Max |
---|---|---|---|---|---|
|
944 | .54 | .50 | 0 | 1 |
|
944 | 33.9 | 9.60 | 18 | 69 |
|
944 | .45 | .50 | 0 | 1 |
|
944 | .75 | .43 | 0 | 1 |
|
944 | .77 | .42 | 0 | 1 |
|
918 | .58 | .49 | 0 | 1 |
|
944 | .66 | .47 | 0 | 1 |
|
675 | 2.59 | 1.33 | 1 | 6 |
Note: All correlations significant at 1-5% levels are displayed with an asterisk.
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---|---|---|---|---|---|---|---|---|---|---|
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1.00 | |||||||||
|
-0.06* | 1.00 | ||||||||
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-0.07* | 0.05 | 1.00 | |||||||
|
-0.12* | 0.08* | 0.48* | 1.00 | ||||||
|
0.00 | 0.00 | -0.22* | -0.16* | 1.00 | |||||
|
0.00 | 0.12* | 0.15* | 0.14* | -0.26* | 1.00 | ||||
|
-0.09* | 0.03 | 0.17* | 0.20* | -0.27* | 0.25* | 1.00 | |||
|
0.13* | 0.11* | 0.34* | 0.25* | -0.32* | 0.29* | 0.08* | 1.00 | ||
|
0.08* | -0.06 | -0.07* | -0.01 | 0.15* | -0.25* | -0.02 | -0.22* | 1.00 | |
|
0.02 | -0.10* | 0.09* | 0.09* | 0.14* | -0.17* | 0.00 | -0.08* | 0.42* | 1.00 |
Logistic regression results (see
Notes: * p < 0.10, ** p < 0.05, *** p < 0.01. Standard errors in parentheses.
1 | 2 | |
---|---|---|
(layoff) | (pay reduction) | |
Gender | 1.92*** (0.43) | 1.01 (0.18) |
Age | 0.98 (0.01) | 0.97*** (0.01) |
Residence 1 | 1.04 (0.25) | 1.60** (0.32) |
Residence 2 | 1.51 (0.42) | 1.50* (0.35) |
SME employee | 2.49** (0.82) | 2.00*** (0.43) |
Full-time employee | 0.44*** (0.10) | 0.49*** (0.10) |
Wage employee | 0.94 (0.21) | 0.93 (0.18) |
Income | 0.69*** (0.07) | 0.95 (0.07) |
Constant | 0.43 (0.26) | 1.47 (0.69) |
LR χ2 (8) | 78.25*** | 55.55*** |
Pseudo R2 | 0.12 | 0.06 |
Observations | 652 | 638 |
Cross-tabulation data show that a quarter of the SME employees have been laid off, as compared with 11% of large-company employees; around half of the SME employees report having a pay reduction, as compared with 32% of large company employees. Logistic regression results confirm that there is a statistically significant relationship between being employed by an SME and having been laid off or having a reduction in pay. Thus, hypothesis 1, which stated that SMEs have been affected by the crisis to a greater extent than large companies, is supported.
Cross-tabulations show that SME employees are more inclined to think that the crisis has affected their personal finances as much as most people’s: half of the SME employees think so, as opposed to 45% of large-company employees, who state that the crisis has affected their finances
Among SME employees who reported being employed at the time the survey was conducted, most are in retail trade, education, and healthcare and social work. Among large company employees, they are in finance and insurance and information and communications. Thus, there is partial support for hypothesis 3, stating that employees in industries that allow for remote work have been less affected by the crisis, in both SMEs and large companies.
Finally, there is some support for hypothesis 4, according to which most of the employees who continue to work – in both SMEs and large companies – are professionals with medium to high qualifications. The support for this hypothesis is partial, as non-response rates are high (22% for SMEs and 15% for large companies).
Our findings, similar to those on SMEs in other countries, suggest that these businesses have been more affected by the crisis, cutting wages and employment to a greater extent than large companies. A policy implication is that government assistance would be crucial to keeping small and medium-sized businesses open, especially in the sectors that were closed down due to containment measures, e.g., trade, transportation, food, accommodation, and recreation. Another implication is that targeted assistance should be provided to low-skilled employees who have been laid of due to the pandemic and cannot find remote jobs.
Our study differs from most studies on the impact of COVID-19 on SMEs in other countries, as reviewed in
Notes: Variable measurements: gender-binary (0=female, 1=male), age-continuous, residence 1-binary (0=regions, 1=capital city), residence 2-binary (0=rural, 1=urban), sme-binary (0=large-company employee, 1=SME employee), full-time-binary (0=part-time employee, 1=full-time employee), wage employee-binary (0=no, 1=yes), income-ordinal scale (ascending, 1=up to AMD 92 thousand, 6=over AMD 1 million).