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December 09, 2005

The Big Companies Did It

Michael Mandel

We all thought (myself included) that the wellspring of economic growth in the New Economy boom of the 1990s was small innovative companies. We celebrated the eBays and the Yahoos of the world, and told a compelling story about the little guys taking on the big guys. Entrepreneurs rule!

Well, the Bureau of Labor Statistics has just published some new data on job creation, and it looks like the New Economy employment boom was driven by big companies--those with over 500 workers. Take a look at this chart.

The blue line represents the share of gross job creation coming from big companies (four quarter moving averages). You can see that big companies accounted for a bigger and bigger job of job growth as the boom heated up. The flip side (not shown on this chart) is that small companies accounted for a smaller share of job growth during the boom.

This is an awfully big surprise. It undermines my picture of the New Economy boom, and makes me think a bit more about the role of big and small companies in the labor market.

However, what Corporate America giveth, Corporate America taketh awayeth. During the bust, big companies accounted for an outsized share of the job losses (that's the purple line). This part is no surprise.

10:53 AM

Labor Market

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Tracked on January 22, 2006 01:53 AM

I assume the 'bigness' or 'smallness' of a company is measured at the same point the job gain / loss number is measured...seems to me that this could distort the results. For example, take a new company that had 70 employees in 1994, 200 in 1996, 700 in 1997, and 900 in 1998. The last two data points would be assigned to 'big company' job growth.

Now take another new company that was acquired by a larger company but maintained as a separate division or subsidiary. How would job gains in this entity be counted? I bet they show up as 'big company', even if the division/subsidiary still has less than 500 people in it.

Posted by: David Foster at December 9, 2005 05:13 PM

You might note that though the big businesses are responsible for about

23% of the job tunover, they are responsible for about

42% of the employment,

see the PDF file off: http://www.bls.gov/opub/mlr/2000/04/art3exc.htm

Posted by: Mike Liveright at December 9, 2005 05:22 PM

David,

The BLS did the numbers in a clever way where if a company goes from small to big, some of the growth is allocated to each step along the way.

Michael

Posted by: Mike Mandel at December 12, 2005 09:01 AM

Thanks. I'd rather have seen "cohorts" starting at a particular point in time and then tracked forward. Also, any idea how they handled acquisitions?

And 500 employees seems like a strange cutoff for "big". There are more than 2 orders of magnitude between a 500-employee company and a GM or GE.

Posted by: David Foster at December 12, 2005 10:09 AM

They've got the 1000+ category too, which shows roughly the same behavior.

Posted by: Mike Mandel at December 12, 2005 10:25 AM

The 500 employee cut-off seem appropriate. I always think of small as less than 100, mid-size as less than around 1000, and large as 1000+.

Posted by: Sivaram Velauthapillai at December 13, 2005 12:30 PM

The chart is interesting but I am not sure it really supports your point about big companies.

It would be good to see a chart that contains similar data for small firms, and compares them with large firms.

Posted by: Anita Campbell at December 14, 2005 12:49 PM

Isn't this generally true over the business cycle?

Posted by: Lord at December 14, 2005 02:43 PM

Anita--The small business data shows the same pattern, only in the opposite direction--the share dropped in the 90s boom. I can post it if you want.

Lord--Nobody knew before what the business cycle pattern was--the data didn't exist.

Posted by: Mike Mandel at December 14, 2005 02:49 PM

At the Quarter 2 marker for 2004, the share of gross jobs gain is increasing. Is this trend indicative of another partial boom driven by employment by the "big" companies? And if not, have you any insights as to what the current market means for employment by the "big" companies?

Posted by: Jeffrey Lee at December 15, 2005 12:53 PM


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