Economic Trend Toward Large Employers

Timothy TaylorTimothy Taylor wrote an article that answers a question that I’ve wondered about for a while, What Share Work for Large Employers? If we define a large employer as a company that has 500 or more employees, then there has been a shift in recent years toward large employers. In 2003, 49.3% of all American workers were at large employers; in 2012, it was 51.6%. All of the smaller employers have lost market share, but the biggest loser has been the smallest companies — those with fewer than 20 employees. This is very interesting, but hardly surprising.

Americans fetishizes the “small business.” It’s very much like the “family farm.” I’m not sure why this is. Having grown up in a small business family, I can tell you the myth is nothing like the reality. It reminds me of a second season episode of Bob’s Burgers, “Bob Day Afternoon.” In it, Mickey notes that it’s cool that Bob has his kids work at the restaurant, and Bob replies that it’s only because he doesn’t have to pay them. When I saw that, I figured that one of the writers had a childhood like mine.

Arindrajit DubeThe other part of this is that I saw my parents treat the actual employees they had fairly badly. And they were not at all exceptional — I’ve seen it countless times with employers I’ve had as well as ones I’ve observed from the outside. They live in constant fear of bankruptcy. They never feel secure, even when things are going really well. And they expect their employees to care as deeply about the business as they do. Sadly, employees often do feel deeply committed to the business. But they are rewarded with bad pay and treatment until they finally have enough.

Taylor presented data that indicates this — at least as regard to pay. The average pay for workers at small employers is $36,912. It goes up the larger the firm. For firms with over 500 employees, the average pay is $52,554. That’s a 42% higher pay rate. Of course, this is average and not median. Also, one might think that companies with more employees are more successful and therefore can pay more. But I suspect it is just that if you have a thousand employees, you need them to stick around. It is costly to replace people. If you have five employees, well, there’s always some guy straight out of prison or rehab or a homeless shelter who is desperate for job.

Over the last couple of days, Paul Krugman and Arindrajit Dube have been discussing this issue of why it is that Walmart is seeing benefits from raising its wages. And what they propose is that rather than increased wages just being a cost, it actually has a feedback. When people are being paid less than the value of their work, giving them a raise will increase productivity. In other words: poor workers will reward their companies for being treated reasonably.

Compare this to the rich. I’m constantly amazed at this ridiculous conservative canard that if we raise taxes on the rich then they will stop working so much. I remember seeing a cartoon that summed this up. There were two corpulent rich guys laying by a swimming pool. One of them said, “I’ll tell you this: if they raise the capital gains tax, this is one coolie who won’t be breaking his back!” The truth is if a CEO is getting paid a million dollars per year, he isn’t going to be better at his job if you pay him ten million. In fact, such outrageous salaries are likely to make people complacent. I know if someone paid me $10 million per year, I’d quit after the first year and start a repertory company.

But it is always the best paid people who are the focus of company larges. And despite recent moves by Walmart and Target, I doubt that this is changing. It would be nice to think that these companies are starting to realize that having a strong middle class is actually good for them. It certainly would be good for the economy as a whole. But there is always money to be made next quarter for the CEO who keeps wages down, even if it is terrible in the long term. So I’m not keen about the economy’s move toward bigger employers. Even if they are better to their employees than the little companies are.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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