One theory of economic growth says, “Find the next big thing; attach your fate to the industry of the future!” Start, build and grow industries in the “correct” sectors, proponents of this vision assert, and you will achieve economic success. This strategy puts a premium on forecasting technological trends and consumer tastes, on being “with it” as a futurist.
Another theory says that such attempts at prediction are a fool’s errand that risks leaving backers – taxpayers, for public endeavors – the leftovers from someone else’s “sure thing.” It’s better, proponents of this position argue, to leave the forecasting to those on the front lines of technology and customer relations and focus on building nimble, well-managed enterprises committed to being responsive to technological and customer trends and continuous growth.
It is interesting, with these two theoretical lenses in mind, to look at the varying patterns of employment decline and recovery over the past five years. According to Department of Labor data, the U.S. suffered a net loss of 7.9 million jobs between the second quarter of 2008 and 2009. Of these, fully one-third – 2.4 million jobs – came from the net layoffs and outright closures of large businesses, meaning those with over 1,000 workers. Moving forward a year, the country has a net loss of nearly 800,000 more jobs, fully 45 percent of which were accounted for by the net job losses of businesses with 1,000 or more employees.
In other words, the bulk of the initial crash of “The Great Recession” was a big-business drop. Indeed at the other end of the scale, very small businesses (those with one to four employees) added 1.4 million jobs through expansions and another 2.2 million through newly formed businesses. While these additions were offset by other small enterprises that cut back and closed, the overall flux in the small-size category remained quite dramatic right through the recession.
As recovery began to take hold, small and medium-sized businesses played a larger role. The net job creation of the very large (over 1,000 employees) businesses fell to 24 percent of net job growth in 2011 and 26 percent in 2012. While every size category of business showed net job growth in these two years, the largest increases were in the mid-sized categories, particularly in the 20-to-49 and 100-to-249 employee categories.
In the most recent year, however, from 2012 to 2013, the pattern of growth shifted again. The net job gain was 2.7 million, up 4 percent over the net gain of 2.6 million in 2012. But of that gain, 44 percent came from the net job growth of the 1,000-plus employee size category. Indeed, the net job growth, while positive for every category, slowed from the 2011-2012 rate for every category except for the very smallest (the one-to-four employees category) and the very largest. In short, the latest pattern of recovery looks a lot like the early pattern of collapse – highly determined by the actions of the very largest businesses which play out over the continued dynamism of the very smallest businesses.
These data seem to indicate that the reason for the slow job growth accompanying recovery from the Great Recession lies in the hesitancy of medium-sized businesses to continue adding new workers. While the reasons for such hesitancy are legion – uncertainty about future tax rates and health care costs, the alleged shortage of skilled workers, bad weather, crumbling infrastructure, the dysfunctional political stalemate in Washington – the conclusion seems clear. If we are to see full recovery we need bold and dynamic leadership in our mid-sized businesses.
Whatever sectors we may address – natural resources, high-tech, digital communication-enabled – our economic development strategy needs to be focused on improving and celebrating the creative management of mid-sized businesses that aspire to become bigger.
Charles Lawton is chief economist for Planning Decisions Inc. He can be reached at: [email protected]