May 26, 2018
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Why have U.S. jobs in small business gone missing?

By Peter Orszag, Special to the BDN

Big business, we keep being told, has been so hampered by regulatory uncertainty over the past few years, it has been reluctant to hire workers.

So it is surprising to read the results of a little-known survey from the Bureau of Labor Statistics: Very large businesses, it turns out, have been expanding their domestic workforces relatively rapidly. If, since January 2011, businesses of all sizes had hired at the same rate as those with 5,000 or more employees, we would have almost 4 million more jobs today.

The BLS data show that the overall weakness in the U.S. labor market reflects slow employment growth among smaller businesses, following a recession that hit them especially hard.

The data come from the bureau’s Job Openings and Labor Turnover Survey (JOLTS), which is commonly used to examine trends in rates of hiring and job loss. While the monthly payroll numbers that receive so much attention show the net change in employment — the difference between the number of workers hired and the number leaving their jobs — the JOLTS data provide crucial information about why employment is rising or falling. (For instance, does higher employment reflect more hires or fewer people losing jobs?)

The JOLTS data are also useful in that they are broken down by business size. As the economists Alan Krueger, now the chairman of President Barack Obama’s Council of Economic Advisers, and Sarah Charnes, at the Treasury Department, wrote last year, the JOLTS data are “the most timely government source of information on employment trends by establishment size.”

Krueger and Charnes had concluded from the JOLTS data “that small-business employment was particularly hard hit during the recession, and that employment continued to contract at small businesses in the early phase of the recovery while it was increasing at medium-size and large establishments.” The most recent BLS data suggest that this pattern has continued.

Business establishments with 5,000 or more employees expanded their workforces by an average of 0.4 percentage point a month from January 2011 to February 2012, the most recent data show. In the same period, in contrast, businesses with 10 to 50 employees expanded by only 0.1 percentage point a month — and those with nine or fewer employees actually reduced their net employment.

Since January 2011, establishments with more than 250 workers have expanded their employment by an average of 0.25 percentage point per month, compared with an average of 0.15 percentage point for smaller ones. If all establishments had expanded at the same rate as those of more than 250 workers, we would have almost 2 million more jobs today. So depending on how you do the calculation, if, since the start of last year, employment growth at smaller businesses had matched that at larger ones, we would now have 2 million to 4 million more jobs.

Private-sector indexes show a contrasting pattern. The ADP National Employment Report, for example, which is based on statistics from the payrolls that Automatic Data Processing, Inc. manages, has shown more rapid employment growth over the past year for businesses with fewer than 500 employees than for those with more than 500. Similarly, Intuit’s small-business employment index shows stronger small-business growth than the JOLTS data do. Those private measures, however, don’t categorize very large businesses separately — and the JOLTS data suggest that the very large businesses are expanding more rapidly than any others. Furthermore, some analysts say the small businesses covered by the private-sector indexes may be growing more rapidly than other small businesses.

So what are we to make of all this? Krueger had earlier speculated that “small businesses responded differently to the financial crisis and subsequent recovery because they had lower fixed costs associated with hiring and laying off workers than large employers, and because small companies had less access to credit.”

More recent data suggest that credit availability has improved for small companies. But the JOLTS data highlight the importance of exploring how the continuing deleveraging process and resultant sluggish growth in demand is affecting smaller businesses in particular. With the percentage of working Americans stuck at a depressed level, we sure could use those extra 2 million to 4 million jobs.

Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.

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