Small Companies Create More Jobs? Maybe Not

The common belief is that small companies are the engines of growth that power the American economy and are the job creators.  According to this NYT article that may not be the case the past for the past few decades.  “The most growth in employment has been in large firms,” said Nathan Clausen, the bureau’s economist in charge of the development of the new statistics.  A large company is defined as those having at least 500 employees or more while a small companies employees 49 people or less.


Via NYT piece

• The figures cover employment from April 1990 — one month after employment reached a high for that economic cycle — through March 2011, just over a year after employment hit bottom after the 2007-9 recession. During this period large companies rose 29 percent, while employment at smaller companies rose by less than half as much. 
• The new data was released on an experimental basis, and is shown in the accompanying charts. If all goes as planned, in July the bureau will release figures through March of this year. Within a couple of years the figures will be released with only a three-month delay and will also include information on wages and hours. That will enable analysts to see which size companies pay better, both over all and in various industries, and where pay is rising or falling. 
• Small-company employment seems to have been more stable in good times and bad. The numbers rise more slowly during expansions and fall less sharply during recessions. When large companies shed workers during and after the 2001 recession, the number of people working for small companies actually rose. 
• In manufacturing, smaller companies seem to have done much better than larger ones. Employment at smaller companies fell at a slower pace during the crisis, and since then has risen more rapidly.  So where did the belief that small companies create most jobs come from? To a large extent, it comes from another data series, known as Business Employment Dynamics, maintained by a different part of the Bureau of Labor Statistics. For each quarter, it calculates the number of jobs added and lost in each size of company, and those figures seem to show that over the long term larger companies create about 35 percent of jobs, as opposed to more than 60 percent in the new numbers. 

 

I think that there could be a few reasons why employment at large companies has increased vs. small companies

1. Although large companies hire more in good time, this last recession they likely cut a substantially greater amount of their workforce and this have been bringing them back slowly on a need only basis
2. Although I don't have the stats to back up this thought, small companies can come and go quite quickly.  However during the great recession small companies likely were wiped out at a far greater pace and were certainly not hiring.
3. Restrictive government regulations.  Uncertainty surrounding taxes and health care coverage would sure scare me away from hiring unless I absolutely had to