Average U.S. Business Employs Fewer People Than Just 10 Years Ago, Dol Report Says

The number of workers on the average U.S. business establishment’s employee payroll has fallen, and not just because of the recent recession and the slow pace of recovery from it. In fact, the mean number of employees at each U.S. business establishment – defined as a single physical business location, regardless of its affiliation with a larger company – has fallen steadily for more than a decade, according to a study published by the Department of Labor (DOL) in March.

The DOL report, which was authored by two economists in its employment statistics bureau, put the number of employees per establishment at 15.7 in 2010, up slightly from the year before but significantly down from a high of 17.5 in 2000. The figure had risen steadily during the tech boom of the 1990s, but began declining after the tech bubble burst and has trended steadily downward ever since.

Very small business payrolls – those with five or fewer employees on them – began to represent an increasing share of the total U.S. workforce throughout the 2000s at both the establishment level and the firm level (the total number of workers at all of a company’s physical locations combined).

Since the trend toward smaller staff sizes began during a period of economic expansion in the early 2000s, well before the late-2000s recession, the authors of the DOL study suspected that there are forces contributing to a downsizing trend that have nothing to do with the overall health of the U.S. economy.

Some of the possible explanations for decreasing establishment size would be:

  • the need for fewer workers in both support and production roles because of advances in computer and machine technology
  • the possibility that today’s telecom and information technology enable a single firm to establish more geographic locations to serve customers while still keeping each of those establishments minimally staffed
  • the increasingly available option to farm out support functions via moves such as outsourcing payroll, human resources functions, accounting and business tax management
  • a greater number of employees working remotely from home
  • increased use of independent contractors

Another obvious possibility would be that as the American economy changes, proportionally more companies are in industries that require fewer workers on average. To test this idea, the DOL economists broke down the average establishment size by industry over the years. While the size of establishments has been shrinking in “old economy” industries such as manufacturing and utilities, the same trend also showed up in fields such as information, finance and technical or scientific services.

However, the authors of the study came to the surprising conclusion that the factor that correlates most strongly to the size of a business establishment is its age. Newer companies, perhaps because of some of the reasons mentioned above, typically start out smaller and add employees more slowly than they used to, across all industries.

Newly established businesses in the 1990s started up with an average of 7.6 workers. By 2001, the average was down to 6.8 workers, and by 2011 it had fallen to just 4.7 workers. As some older firms inevitably go out of business, newer companies employing fewer workers on average make up a larger and larger share of the economy.

A New York Times business writer commenting on the DOL report suggested that if each new company is employing fewer workers on average, only the creation of more startups can keep the number of available jobs on pace with the size of the American workforce.

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