Charles Kenny is absolutely right that small companies as such won’t solve the problem of the millions who are unemployed:
In the U.S. in 2007 there were around 6 million companies with workers on the payroll. Ninety percent of those businesses employed fewer than 20 people, according to analysis of the latest census data by Erik Hurst and Ben Pugsley of the University of Chicago. Collectively, those companies accounted for 20 percent of all jobs. Most small employers are restaurateurs, skilled professionals or craftsmen (doctors, plumbers), professional and general service providers (clergy, travel agents, beauticians), and independent retailers. These aren’t sectors of the economy where product costs drop a lot as the firm grows, so most of these companies are going to remain small. And according to Hurst and Pugsley’s survey evidence, the majority of small business owners say that’s precisely their intent—they didn’t start a business for the money but for the flexibility and freedom. Most have no plans to grow.
but his adulation of the virtues of large, established companies provides cold comfort:
If you’re looking for a lot of good-paying, stable jobs, you’d better hope there are some big companies around that want to hire. Kansas City Federal Reserve economist Kelly D. Edmiston’s analysis of U.S. data found that each year, 22 percent of staff in companies with fewer than 100 employees quit or are fired, compared with only 8 percent for companies with 2,000 or more workers. Edmiston also found that the jobs offered at large businesses were better than those at small businesses. Hourly wages at the largest companies, those with more than 2,500 employees, average around $27, compared with $16 in companies with payrolls of fewer than 100. Companies with more than 100 workers are almost twice as likely to offer retirement benefits and insurance, and considerably more likely to offer health care.
The problem is that those very companies have reduced their payrolls in the United States by millions of job over the period of the last 25 years. Can anybody reasonably predict they’ll start hiring a lot more people in the foreseeable future.
Can anybody think of a large company that is less than 15 years old that has a net increase in U. S. employees in the last year? In the last five years? I can’t. GE, GM, and Ford have all reduced their domestic employment. Apple is cagey about its employment figures (it doesn’t report them in its 10-K filings). What jobs its added have been mostly low wage retail clerks for its Apple stores and, as I read the reports, most of the growth in that area has been overseas.
The size of the company is largely misdirection. New companies hire; old, established ones don’t. That’s why policy should pay more attention to greasing the skids for the creation of new companies, not to mention getting the dinosaurs out of the way.
Old companies aren’t hiring because there is economic malaise and stagnation. New companies require venture capital and fearless optimism, both of which are difficult to acquire these days. Also, healthcare’s implementation is hovering out there in the wings, bestowing 50 as the magic number of employees you don’t want to reach, in order to avoid being ensnared by the financial consequences of this overreaching law.
So, basically, no matter how you parse it, there are just too many bureaucratic land mines out there, hidden and out in the open, creating paralyzing uncertainty for any size company from expanding, and/or for others to embark on a new start-up.
I work for a large company and for awhile there we were hiring quite a few people. Then the make up of our main regulatory body changed and we were looking at a much more hostile environment so we’ve put a hiring freeze in place.
Government/central planning for the win!
“Here I am to save the day!!” Just kidding.
In a back channel exchange earlier this week I pointed out to Dave some positive press my firm got wrt a boring, old line business conducted by one of our portfolio companies because of its growth agenda and jobs creation. My point was simple: job creation is a bazillion smallish companies slogging it out day by day.
What do I mean by small? No, its not the barber shop or the plumber. (Although my plumber just broke off from his firm and wants to go from one man to build a 10 person operation. I told him I’d help in any way I could. You need to foster this type of activity.) And no, its not GM. Its the vast in between. Really – and this is my world – its those $30MM – $300MM enterprises.
I’d love to have what I call “master stroke” talent to create a Facebook or Google and hire large numbers of people. I’m just not that clever or creative. But I do know what to do with a 100-300 person workforce making widgets and increase employment by 25% – 50%. And when you think how many of these businesses are out there, you begin talking job creation measured in millions.
Not sexy, but its how its done. I just wish the government would quit putting up roadblocks while pawning off pie in the sky solar deals as the answer.
Can anybody think of a large company that is less than 15 years old that has a net increase in U. S. employees in the last year? In the last five years?
Google springs to mind immediately. Among still-large but less famous companies, QuikTrip has definitely grown in the last few years. I think Trader Joe’s has too. The latter two are not new companies, either, but mature companies whose business models have been well-suited to current trends.
Sorry, Maxwell. I erred and have corrected the post accordingly. I meant to say not less. Google’s not an old, established company and I think it substantiates my point: it’s a new, large company. New companies hire people.
Well, fair enough since I misread your sentence as well. The latter two in any case are both safely over 15 years old.
I don’t bring them up to disagree with you – more just to put a point on how tricky this can be. Public data on both TJs and QT can be hard to come by – they’re both private, fairly secretive companies – but there’s little doubt that both have grown fairly significantly in the past several years, much like a newer company would. But what’s enabled that are large-scale trends that support their business models (plus perhaps some mostly invisible entrepreneurship within the two firms).
Another one that’s grown like crazy: Party City, established in 1947. Sorry it’s another retailer – that’s just the industry I know best:
http://www.inc.com/inc5000/profile/party-city
My point is that it’s hard to predict when companies will hit that period of explosive growth that creates a ton of jobs. It’s probably more likely that they’ll do it when they’re fairly new. But it can really happen at any time.
“But I do know what to do with a 100-300 person workforce making widgets and increase employment by 25% – 50%. ”
Where were you guys in the aughts, when the economy was supposedly good? Are you the only one? It seems like there were a lot of you in the 90s, but they all disappeared.
Steve
“Where were you guys in the aughts, when the economy was supposedly good? Are you the only one? It seems like there were a lot of you in the 90s, but they all disappeared.”
Please. You’ve become an embarrassment, steve.
There were 8 good months of job creation after the 2001 recession.
http://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth
Add in labor participation.
http://www.zerohedge.com/article/labor-force-participations-plunges-fresh-26-year-low
Embarrassing job creation.
Steve
The rate of job creation has been declining for decades. If you were to adjust that to a per 100,000 population it would look even worse.