Size Matters in Employment

It is always fun to check on the recent validity of eternal truths. For example, I was shocked to learn one day that if a tree fell in the forest you could not hear it if you were talking on your cell phone. I was also surprised to learn that JD is not an elixir and will not prolong my life past 100 years.

So I decided to check up on another truth – that small businesses are responsible for all or most new jobs in America. I hear people make that claim all the time. For example, I was having a JD on ice at a local tiki bar when the lady sitting next to me whispered in my ear – hey fella what do you think about the proper size of an NFL football? Not knowing the correct answer I whispered back – most jobs in the US are created by small businesses. She toddled off shortly thereafter.

Now that I have your attention, I can move ahead. Who really cares whether jobs are created by your local dry cleaner or by Amazon.com? A job is a job. In fact the job at Amazon probably has better benefits and security. I know that some of you think that bigness creates meanness and that AT&T and GM have it in for workers. But those of you who think that way probably never had a job at one of these small companies. I recall one summer working for a landscaper who yelled at me when I accidently almost cut my arm off with his power saw.  I am not sure if the guy was ever sober one time we worked together.

My point  today, however, is not to irritate small business or to argue with the zillions of fine people who believe that small businesses were invented by God and are the sole source of all good things including JD. My goal in writing this blog post is simply to look at some data that measure recent job change in the USA by size of company. And doing that I have to admit was almost as fun as teaching a three hour class at 9 am  at Big Arts.

Below is a table of numbers I constructed after visiting the Bureau of Labor Statistics web page (http://www.bls.gov/news.release/cewbd.t04.htm ). I take no responsibility for the definition of small or large or what is in between. I will also refrain from any jokes about the meaning of small or large since I know that my readership is above such things. But I do recall a joke about relativity and women’s technical skills in which a man holds his fingers one inch apart and explains to the woman that the distance between those two fingers is exactly six inches.

The BLS has decided to divide private sector companies into three size groups – 49 or less employees; 50-249 employees; and 250 or more employees. They published data for each size cohort for the years 2004 to 2013. Their data is by quarter so I added the quarters to get yearly totals. Their data set has employment gains and losses for each quarter for each size cohort. I have netted the losses from the gains to get the net increase or decrease in each year for each size cohort.

The numbers are pretty interesting. The first set of sums in the table below show how many jobs were created in those 10 years. Below the sums are the averages per year. Roughly 330,000 jobs were created each year. Small companies created 103,000 per year (31%); Medium firms 171,000 per year (52%) ; large companies 55,000 per year (17%).

So you might conclude from these past 10 years that small companies were responsible for about a third of the net jobs created in private companies. That is a nice hunk of jobs buy clearly is nowhere near even a majority.

But let’s take this another step. The years 2008 and 2009 were unusual. While large companies typically account for a minority of the jobs gained in expansionary years notice that the larger companies accounted for nearly 7 million job reductions in 2008 and 2009. Small business lost less than half that amount. So let’s remove those two years and look at the 8 remaining years in which there were net job gains. If we believe those 8 years are more typical for accessing job gains – then the picture changes radically. The average increased employment of the larger firms was about 927,000 jobs per year. Small firms accounted for about 563,000 jobs per year.

Whoa Nellie you say. Larry – you can’t throw out the numbers you don’t like. That’s true. But it is also true that neither set of averages is perfect. Leaving in two very atypical years distorts our conclusions. Removing those two years equally taints the data. Without any easy or obvious third way, I think it is safe to say that both sets of data inform us. Weighing both together suggests that we not discriminate against the bigger firms when it comes to finding ways to expand US employment. It just ain’t true that small firms are the only sources of job growth.

Table. Net Job Change Private Sector Companies

2004 to 2013 by Size of Company

Thousands of jobs

Year	0 to 49	50 to 249	more
2004	684	467	1048
2005	696	373	1076
2006	554	433	666
2007	3	217	418
2008	-1479	-580	-1647
2009	-1993	-1054	-5211
2010	346	379	633
2011	591	502	923
2012	776	519	1003
2013	853	458	1645
Sum	1031	1714	554
Average	103	171	55
Sum2	4503	3348	7412
Average2	563	419	927

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