What May be the Most Commonly Misunderstood Fact About the Job Market

jaredbernsteinblog.com

Oct 15, 2011

This is widely misunderstood, but the fact is that most businesses are small, but most employees work in large firms (the figure below focuses on “establishments” rather than firms—the former is a single physical place of business; firms can incorporate numerous establishments; the main result is insensitive to this difference).

The figure shows that most businesses employ few workers. Just about 50% employ four or fewer workers, and 80% of businesses employ fewer than 100 workers.

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But as the second bar in each group—number of employees—shows, about half of all employees work in firms of 500 or more workers and two-thirds work in firms of at least 100 workers.

Payroll (total compensation) is even more skewed: 57% is paid out by firms of 500 or more workers; only 30% of payroll is paid by firms of less than 100 workers.

Nor is it the case that small businesses, per se, are the engine of job growth their advocates claim. Research like this finds that “once we control for firm age there is no systematic relationship between firm size and [job] growth.” As I stress here, that research shows that it’s surviving startups that are particularly important in terms of generating new jobs.

So, summing up, small businesses, say those with 100 workers or less, account for a minority of both workers and payrolls, and are not the primary engine of job growth.

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