Job creation process in a transition economy

In many European countries, SME policy is close to being a synonym for job creation. Most empirical research on the job-generation potential of small firms over the last decade has been done in the stable and favorable economic conditions of market economies. The paper investigates the role of small firms in more difficult circumstances. On an empirical data set for Slovenia, the paper tries to show that small firms have been the most important employer during the transition period, a finding that very likely can be extrapolated for other European transition economies. Over the last decade Slovenia has transformed from a labor-managed economic system to a market-oriented economy. If we compare the firm-size structure in a socialist-like economy to the firm-size structure in a mature market economy close to equilibrium, we notice a typical absence of small- and medium-sized firms, with the exception of craft shops. That was how Slovenia appeared in the early nineties. Charac-terized by the removal of administrative barriers, transition encouraged a spontaneous entrepreneurial wave through an expanding small business sector. The ensuing changes in employment distribution changed the firm-size structure.