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06.26.07

Economic Activity and Labor

Employment and Firm Size over the Business Cycle

Large firms in the United States create and destroy jobs at a slower pace than small firms, but they nevertheless make a large contribution to gross job creation, gross job destruction, and the net change in employment. (See “Employment Flows and Firm Size” for an overview of these points.) A recent study in Monthly Labor Review looks at recent patterns of gross job gains and losses across different sizes of firms and argues that there is more to the relationship between firm size and employment than meets the eye.1

The study’s authors observe first that large firms have been making sizable contributions to job creation for some time. Using data from Business and Employment Dynamics of the Bureau of Labor Statistics, they show that between the second quarter of 1990 and the third quarter of 2005, firms with more than a thousand employees accounted for nearly one-third (29.9 percent) of the total net change in employment over the period, contributing 18 percent to gross job gains and 17.4 percent to gross job losses. Small firms—those with 20 to 49 employees and those with 1 to 4 employees—follow in terms of contributions to gross job gains and losses.

As relatively large firms grow, we expect to see the fraction of employment they account for increase. In some cases, this is what the authors find. Firms with more than 500 workers, for example, saw their share of employment increase from 41.4 percent to 44.2 percent over the period. On the other hand, firms with fewer than 100 workers saw their share decline, from 40.6 percent to 38.2 percent, during the same time.

But here’s where it gets really interesting. The authors discover that the role small and large firms play in net job creation over the course of the business cycle changed over the period studied. During that period, there were two recessionary episodes in which net job losses occurred. During the first (from the second quarter of 1990 to the first quarter of 1992), most of the net job loss (58.06 percent) came from firms employing fewer than 100 workers. But in the second episode (second quarter of 2001 to the second quarter of 2003), this share declined to a mere 18.67 percent. This sharp difference was not caused by differences in the shares of gross job gains across the two recessions but by higher job losses at large firms (which increased from 15.9 percent to 20.06 percent).

Net Job Change During Economic Recessions and Expansions


Number of
employees

 

Recession
1990:QII–
1992:QI

 

Expansion
1992:QII–
2001:QI

 

Recession
2001:QII–
2003:QII

 

Recovery
2003:QIII–
2005:QIII

 

1–4

 

3.69

 

7.25

 

−2.98 

 

11.43

 

5–9

 

7.6

 

5.69

 

0.64

 

5.83

 

10–19

 

12.16

 

7.46

 

3.5

 

7.26

 

20–49

 

19.9

 

11.57

 

8.52

 

11.29

 

50–99

 

14.71

 

9.29

 

8.98

 

8.99

 

100–249

 

15.12

 

11.82

 

12.31

 

11.79

 

250–499

 

7.15

 

7.77

 

9.88

 

7.48

 

500–999

 

2.37

 

6.77

 

10.5

 

5.65

 

1,000+

 

17.3

 

32.38

 

48.64

 

30.28

 

1–99

 

58.06

 

41.26

 

18.67

 

45.4

 

100+

 

41.94

 

58.74

 

81.33

 

54.6

 

Source: Monthly Labor Review, Bureau of Labor Statistics, March 2007.

 


1. Jessica Helfand, Akbar Sadeghi, and David Talan. (March, 2007) “Employment Dynamics: Small and Large Firms over the Business Cycle,” Monthly Labor Review. Bureau of Labor Statistics. 130-3, p. 39-50. [back]

 

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