Economic Perspective: Employment In Small and Big Businesses

MARY WALDEN:

“Today’s program looks at employment in small and big businesses. Mike, it’s generally been accepted that small businesses generate much of the new jobs in our economy, but just like many things I understand this may not be the case in the years since the Great Recession. Please explain.”

MIKE WALDEN:

“Yes, there appears to be a big change since the Great Recession. Of course, firms of all sizes suffered during the Great Recession. If you look at the years since, we’re counting roughly since 2010, you see that employment in big businesses, and we’re going to define big as 2,500 or more employees, has fully recovered. So all the jobs lost during the Recession have come back for big businesses.”

“For small business, we’ll say a small business here is 100 or fewer employees, employment has not come back. So, bottom line here is that since 2010 more people, a higher percentage of people, are now working in big businesses than in small businesses. Indeed, this has sort of been the trend over the past couple of decades, and economists are scratching their heads trying to figure out what’s going on.”

“We think mergers and consolidations among large firms is part of the reason. We think that’s driven by globalization, tougher competitive environment, technology and all those things seem to be working toward motivating businesses to get bigger. Sometimes they get bigger by merging with another business.”

“Now over the long run though many economists think technology will still allow some small firms to still compete. Indeed, in terms of where new firms are developing, most new firms develop as being small; that’s almost by definition, and technology is allowing that to happen. But in terms of whether small businesses will someday become the employers of the majority of workers, we don’t see that at least in the near term.”