The (Long Term) Jobs Trend is Better at Smaller Establishments

Because the recession has been quite severe, a lot of the recent discussion of employment has focused on the time period since the recession began in December 2007. As you no doubt know, over that time period, the jobs picture hasn’t looked pretty in businesses of any size – small, medium, or large.

But if we look at the jobs situation over a longer period of time – since 2000 – the pattern is different, particularly across businesses of different sizes.

In the figure below, I have plotted the number of people employed in small, medium, and large establishments relative to their level in December 2000, using data collected by Automated Data Processing (ADP). ADP reports monthly numbers on employment in small (1-49 employees), medium (50-499 employees) and large (more than 499 employee) private sector establishments that use its payroll services.

Jobs growth SMBs and large businessesThe substantial job loss from the recession in all sized establishments is clearly visible in data. Employment in March 2010 is well below what it was in December 2007 when the recession began.

But two other trends are visible in the data. First, large establishments have shed the most jobs over the past decade, followed by medium-sized establishments. In March 2010, establishments with 500 or more workers employed only 84.3 percent of the people that worked for them in December 2000 and establishments with between 50 and 499 workers employed only 93.6 percent.

Second, during the period between the last recession and the current one, small establishments added a lot of jobs. So many, in fact, that they currently employ 103.5 percent of the workers they had in December 2000.

We have to be a little cautious about drawing conclusions about companies from these data because establishments are not firms. The U.S. Census explains, “an establishment is a single physical location where business transactions take place and for which payroll and employment records are kept,” but firms are “groups of one or more establishments under common ownership or control.”

Working in an a small establishment is a lot more common than working in a small firm because many companies are made up of lots of small establishments. For example, your local Starbucks is an establishment with fewer than 500 workers, but the people working there are employed by a large company.

In addition, the number of people employed in the three sizes of private sector establishments is far from even. In March 2010, only 16.4 percent of private sector workers were found in establishments of 500 or more people, while 38.5 percent were found in those of between 50 and 499 people, and 45.1 percent in establishments with between 1 and 49 people.

Despite these caveats, the ADP numbers show an important trend. Over the past decade, employment has shifted from larger establishments to smaller ones. Despite the decline in small establishment employment that has occurred during the recession, more people work in small establishments than did so in 2000. The same cannot be said about medium or large establishments.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

4 Reactions
  1. This data just supports the general sense that “big business” in the US is evolving. The steel industry went a long time ago and large-scale manufacturing is increasingly scarce. My biggest question though is “Why do they still measure establishments this way?”

  2. That’s pretty much the opposite to what I expected. I thought small businesses would’ve suffered more?

  3. This just goes to show the power of the small business. Huge companies are viewing their employees as a number and a financial burden, where the small business can grow the employee in different ways.

    When the person feels like they are part of something bigger than themselves, instead of just a number, you can hold onto employees for much longer. I think this trend towards small business will grow exponentially in the near future, as more people get laid off in large firms.

    -Joshua Black
    The Underdog Millionaire