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An Army of Moms and Pops


While the biggest companies draw all the media attention, this is still a nation of relatively small workplaces. Every year, the U.S. Census Bureau publishes a study called County Business Patterns, which looks at the number of employees per establishment, defined as a "single physical location at which business is conducted."

Based on the data for 2000, released earlier this year, there are only 16.1 workers, on average, per establishment. About 54% of U.S. workplaces have fewer than five employees. (A single company may have many establishments. These figures exclude most government agencies and railroad employees.)

The average size of the workplace has been rising, but not very quickly. The average number of employees per establishment was 14.8 in 1993. Nevertheless, the number of small establishments--those with fewer than five workers--has actually risen by 9% since then.

Topping the list of biggest workplaces is the guided missile industry, with each workplace averaging 2,800 employees. Other mammoth workplaces include casino hotels, motor-vehicle plants, nuclear power generators, and poultry-processing plants. Some of the largest establishments are in health care and education, with about 1,500 hospitals and 300 colleges and universities, each employing more than 1,000 workers.

At the other end of the size spectrum is retail trade, where small is the norm. About half of retail shops have fewer than five employees. And plenty of high-powered work is done in small offices, especially in professions such as management consulting, computer-systems design, and architecture. For example, the census data show that in management consulting, 77% of establishments have fewer than five workers, while only 1% have more than 100.

And then there are the smallest workplaces. The winners? Nail salons, with 2.8 employees each, and shoe-repair shops, with 2.5 workers. Why are so many countries mired in poverty? One school of thought says that countries' prospects for economic growth are influenced by geographic factors such as their latitude (tropical or temperate), whether they are landlocked or have seaports, whether they're in places where diseases such as malaria are endemic, and whether they're near wealthy trading partners. A prominent exponent of the geography-as-destiny school is economist Jeffrey D. Sachs, formerly of Harvard University and now director of Columbia University's Earth Institute, who advises U.N. Secretary General Kofi Annan on how to alleviate poverty.

But the Sachs argument is being challenged by economists William Easterly of the Institute for International Economics, formerly of the World Bank, and Ross Levine of the University of Minnesota. In a National Bureau of Economic Research working paper, they say their analysis of the data shows that geography matters, but only to the extent that it influences the formation of institutions in countries, such as whether property rights are protected and whether there is real economic competition, as opposed to an entrenched elite. For example, democratic institutions were less likely to arise in regions with endemic disease because European colonists preferred exploiting their natural resources to settling there.

If Sachs were right--that geography rules--you would expect little change over time in the income ranking of countries, since latitude doesn't change. But a forthcoming paper by Daron Acemoglu of Massachusetts Institute of Technology and others--cited by Easterly and Levine--says that in the colonized regions of the world, there has apparently been a reversal of income rankings between 1500 and today.

Levine says he and Easterly are more optimistic than Sachs about the possibility of alleviating poverty because it's at least possible--albeit difficult--to change institutions. In contrast, the geographic factors that Sachs believes directly affect poverty, such as tropical latitude, are unchangeable. Housing costs consume nearly 35% of household budgets in the Northeast, four percentage points more than in the Midwest (table). Property taxes are one reason for the discrepancy: On average, households in the Northeast devote 4.6% of annual expenditures to property taxes. Those taxes account for just 3.1% of expenditures in the Midwest and only 2.4% in the West and South.

Those figures come from the latest Labor Dept. consumer-spending survey. The survey, based on 2000 data but just released in June, shows that the West is hit hardest by mortgage payments, with 8.5% of household expenditures devoted to mortgage interest and charges, vs. a national average of 6.9%. In the South, it's utilities that are the high-cost item, with electricity--probably for air-conditioning--accounting for 3.3% of spending, vs. a national average of 2.4%.

Since Midwesterners and Southerners spend the least on housing, what do they do with the difference? Transportation, for one thing. Vehicle purchases make up 10.3% of Southern budgets and 9.6% of Midwest budgets, vs. 8.3% in the West and a low of 7% in the Northeast.

The regional disparities in mortgage payments square with the National Association of Realtors' Housing Affordability Index. It indicates that buying a house is most affordable in the Midwest and least in the West: The July composite index was 171 for the Midwest and just 105 for the West. A value of 100 means a family with the median income has just enough money to qualify for a mortgage on a median-priced home.


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