The Economist: Big business
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While small businesses are very important job generators, more than half of Americans are working in large enterprises. The tendency toward large or small size firms varies markedly by industry as well as geography. Average pay per employee is also affected by size. The essential requirements for the success of any business are largely the same (quality workforce and infrastructure, predictable regulatory environment, manageable cost, and tax structure). However, there are differences which can inform the policy and economic development process. A new report from the US Census Bureau looks at business size by industry and geography and how it is changing.
According to the Census Bureau, in 2012, large enterprises employed 59.9 million of the total US employment of 115.9 million. These businesses, which have 500 or more employees, have been growing in importance over time, with the share of employment up from 49.1% in 2004 to 51.6% in 2012. On an industry basis, the greater the capital investment required to operate, the higher the concentration of large firms. Large enterprises dominate industry groups such as utilities, transportation equipment manufacturing, air transportation, and telecommunications. The advantages of bigger operations in terms of efficiency and cost structure are also apparent for some industries such as general merchandise stores, where 98.3% of employment is within large enterprises.
At the other end of the size spectrum, very small enterprises (defined as those with fewer than 20 employees) accounted for 17.6% of total US jobs or some 20.4 million people. Small businesses with between 20 and 99 employees employed 19.4 million people (16.7% of the total), while medium firms (with 100 to 499 employed) provided jobs for another 16.3 million people (14.0% of the total). The employment share of each of these under-500 employment categories has fallen since 2003.
Within some industries, there was growth across size categories (such as manufacturing), while in others there have been shifts underway. In information services, employment decreased for large enterprises from 2011 to 2012, but increased for smaller ones. Smaller businesses tend to dominate the composition of industries such as construction, motor vehicles parts dealers, real estate, and ambulatory health care.
Looking at individual states, the share of total employment in large enterprises varied widely. At the low end were Montana (32.4%) and Wyoming (37.7 %). Nevada was highest, with a full 59.2% of employment in enterprises with 500 or more employees. Texas came in at 54.3%, slightly above the national average of 51.6%.
Employees at large enterprises tend to make more money. The national average pay per employee for large (500 + employee) enterprises in 2012 was $52,554, compared to $40,446 for enterprises with fewer than 500 workers. Worst off were those in very small enterprises, with average pay per employee of $36,912. For Texas, the overall average pay per employee was $47,769 ($53,196 for large enterprises and $41,328 for those with less than 500 employees).
In looking to the future and encouraging the creation of quality jobs, a recent study sheds further light. In a Working Paper from the National Bureau of Economic Research (Who Creates Jobs? Small vs. Large vs. Young NBER Working Paper No. 16300), John Haltiwanger, Ron Jarmin, and Javier Miranda found that the younger companies are, the more jobs they create, regardless of their size. While many young companies fail within the first few years, destroying about half the number of jobs they create, surviving firms continue to grow faster than more mature companies, creating a disproportionate share of jobs relative to their size.
It is a fact that more than half of US jobs are in large enterprises. It is also a fact that the importance of these large businesses as a source of work is increasing. While today’s start-up may become tomorrow’s big business, larger companies can offer distinct advantages in the areas of stability and higher average pay.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.