If it feels like big companies are doing more than their fair share of letting employees go these days, that’s not just because mass layoffs at blue chip firms are the ones that make headlines. New research suggests that in times of recession, large employers disproportionately lose workers, while small companies, as a group, fare better. “It’s definitely the case that large firms are downsizing much faster in recessions,” says Giuseppe Moscarini, an economist at Yale University who conducted the research with Fabien Postel-Vinay of the University of Bristol.
The two economists looked at companies with fewer than 50 employees, and those with more than 1,000, going back to the 1970s—a period that spanned four business cycles. They found that the bigger firms, after adjusting for their larger share of the workforce, account for a greater slice of job destruction during and after recessions—whether through layoffs or simply not hiring workers they would have otherwise. Immediately coming out of a recession, smaller companies were an unusually important source of new job growth, but once economic expansion really took hold, large companies resumed the role of job-creator, added proportionately more positions late in the business cycle.
Those findings match up with what the Society for Human Resource Management has been observing in its monthly survey of members. In the last three months of 2008, 27% of small firms reported decreasing total head count, while 45% of large companies did. That trend was due to continue into this year, with 11% of small companies anticipating decreasing staff by the end of March, but 34% of large companies planning such a change.
What might be behind that Could it be that large companies—more likely publicly traded—are quicker to bow to the pressure of profit-seeking shareholders Or that big companies are more likely to be in certain industries that get hit harder in recessions.
Moscarini and Postel-Vinay have another theory. After observing the same broad trend within different industries and states, and even overseas in countries like Denmark and Brazil, they postulate that small companies hire disproportionately more early on in an economic recovery because it’s easy for these firms to find good workers while unemployment is still high—and easy for workers to come across small companies since there are so many of them. Once the economy is chugging along at full-steam and the labor market is tight, larger companies regain the advantage, since they’re likely able to offer more money—and poach from smaller outfits.
But that shift back to large companies as the major force behind jobs generation can take years. The lesson for the short-term seems to be that small companies are a better bet for work. Just be careful of applying the trend to any specific firm. Small companies on average may not be shedding as many jobs as large ones, but smaller companies are by their very nature volatile—looking at aggregate numbers hides all the instances of companies growing insanely quickly or imploding into nothingness. It’s still the case that most people work for large companies: 45% at firms with more than 500 workers, compared to 30% at those with fewer than 50. Getting a job at a big company is still, statistically, your best bet. But so is losing it.
Read “How to Know When the Economy Is Turning Up.”
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