In Job Creation, Big Is Often Better

Large companies have hired faster than small businesses | Corporations “have been feasting on these low interest rates”

Peter Coy

Small businesses account for the lion’s share of job growth, right? Well, not always. Since the U.S. economic recovery began in June 2009, big employers have increased employment 7.5 percent, while small employers have boosted payrolls only 4.9 percent. Those figures are calculated from data released in early April in the ADP National Employment Report, which tracks private payrolls. During last year’s presidential election, both candidates described small businesses as engines of job creation as they sought the support of business owners.

Mark Zandi, chief economist of Moody’s Analytics, has studied the big-vs.-small issue. (Moody’s partners with the ADP Research Institute on the monthly jobs report.) He has three explanations for why large employers (1,000 employees and up) grew faster than small ones (fewer than 50 workers). First, he says, construction companies did very poorly in the housing bust and have not hired much since the start of the recovery. Many are very small and have struggled just to stay afloat. Second, a serious credit crunch lasted beyond the end of the 2007-09 recession. Big companies had more cash on hand to weather it and were able to borrow in the bond market while bank lending remained constricted. “They’ve been feasting on these low interest rates. The small guys are only now getting credit,” says Zandi.

Finally, “the big guys have been more internationally focused,” he says, and have managed to capture global market share. A decline in the value of the dollar helped make American goods more competitive. If a big company is selling more from its factories in the U.S., it will hire to expand.

Still, from February to March, small companies hired a tad faster than big ones, according to the ADP data. Zandi says that may be a result of a global economic slowdown, plus easing credit conditions for small businesses in the U.S.

The bottom line Large U.S. multinationals have enjoyed cheap credit, global reach, and cash on hand — advantages small businesses often lack.


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