Tuesday, April 22, 2014

Job creators and Business

I hadn't posted in a while, and for some reason the thought about something I read a while back was floating around in my head today.  It relates to the phrase of "job creators" that we hear in political discourse.  I think too often that phrase is thrown around loosely and "job creators" gets equated with all business, even big established businesses who on net are shrinking workforce.

Now, obviously we shouldn't have issue with businesses shrinking work forces as needed to stay competitive, but at the same time we should probably make the distinction that pro-business policies are not necessarily the same as pro job creation policies.   What follows probably makes the distinction that pro-small business policies should be favored if job creation is the goal.

So I google around and find this article "Picking on the Job Creators"that points out for the 3 year period of data he looked at in summer of 2012 companies w/ 500 or more employees had decreasing net employment.  All of the net 2.6 million new jobs created over that time were on net from companies with less than 500 employees

I decided to look at the FRED data series on non-farm payrolls to see if things have changed.  All of the following charts are from that data  First I looked at the data series in totality from 1-2005 to 3-2014, and employment growth is shown in the following:

In the above we clearly see that over the entire time period of the data (05-present) we see that all the net job creation is coming from business with less than 500 employess, and 72% of job creation is coming from businesses with fewer than 50 employees.

Below is what the picture looks like in annual terms from 2005 to 2013.  Interestingly, we've started to see the large businesses grow employment again beginning in 2010.   In particular note the employment changes as we moved through the financial crisis that started in the last half of 2007, and whose effects were primarily seen in employment data changes in 2008 and 2009.

So the thought I have looking at this is - so what has happened since 2008?  What size of business has been a net job creator for 2008 forward?  What businesses are creating jobs to replace those lost since the financial crisis?

So now lets look at the key time period from 2008 where employment growth turned decidedly negative in every business size, and pull that forward to present.

Alright, so now we see that since 2008 the small businesses of 1-49 employees have created the vast majority of jobs, more than replacing those that were lost in 08-09.  Interestingly businesses of 50-499 employees have still not climbed out of the hole they dug in 2008-09.  Same for businesses of size 500-999.   Interestingly the largest businesses that employ 1000 or more people have increased employment some now, and are part of the net job creator statistic.

Is this a good thing?  I really can't say.  My guess is these jobs are not as good as the jobs that were lost.  I have no data on that, just a suspicion.  I do think the data still points, however, to accommodative policy for small businesses if policy-makers are wanting to support employment growth.  And it's probably good for us to specifically think about small businesses of less than 50 employees when we hear the conversation about "job creation."

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