From you to me: a question about the numbers

Posted on | July 6, 2010 | Comments Off

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(Photo by trmarch, via Flickr)

I originally had other plans for today’s post but I got an email over the long weekend that changed my mind.

The email was from Trish, of SENSSE, who wrote in part:

Hi Dawn,

I appreciate your columns and podcasts and especially your dedication to collecting figures. I do have a question though and seemed to have missed where it’s spelled out.

Jobs- How many? That’s where the public, lending institutions and economic developers of every level ask. How many jobs are we talking about?

I got this: Microbusiness at 27M make up 92% of all firms. About 21M of those are ‘non-employer’. But what about jobs? What number and percentage of jobs do microbusinesses hold and which definition of microbuisness (solo, 5 and under, 10 and under etc.)

Well, I thought that was an interesting question.

The thing about microbusinesses and jobs is that it’s not a simple question of ‘how many jobs to they create? how many people do they hire?’

But before I get into that, let me do the easy stuff.

For starters, everything I write here will refer to microbusinesses with fewer than five employees. Obviously, when you look at job creation in this group, you are immediately excluding 85% of them because that’s the percentage of microbusinesses that don’t create traditional jobs, being nonemployers.

So, among the 3.7 million microbusiness employers (and this is still 61% of all U.S. employers), there are 6.1 million employees. That is a fairly small percentage of the overall workforce: only 5%. It’s even more stark when you compare that with the more or less half of the workforce employed by all small firms.

But … and this is where it gets interesting … if you try to look at job creation using the static data, you learn that between 2006 and 2007 (the time period covered in my last post about the overall firm size data), overall employment grew by a minuscule 0.6% while at the same time employment at microbusiness employers increased by 3%.

That sounds just a bit more impressive until you realize that you’re talking about the difference between an increase of 687,100 jobs (overall) versus 179,878 jobs (micros).

The dynamic data — that is, the data put out by the Labor Department that shows jobs created, jobs lost and the net job gain/lost for the period — gives you a much more accurate picture.

The first thing you learn from the dynamic data is that job growth and decline is pretty stable in the middle, among those firms that are larger than micro and smaller than large. The largest firm size class and the smallest have a lot more churn, from a labor market point of view. The change in employment in those two firm size classes from 2005 to 2006 (the most recent year in which we have numbers) is almost the same — up about a million jobs net.

This tells us that large firms are an important source of new jobs but, as Kauffman has been yelling about since last year, very small and new firms are an even more important and perhaps more reliable source of net new jobs.

And this stuff doesn’t even get into the issue of self-created jobs — that is, nonemployers.

You see, while we tend to treat nonemployer firms as businesses, everybody tends to forget that every time somebody creates a new nonemployer firms that have essentially created a job for themselves. Certainly, they go from being unemployed or being otherwise employed to being self-employed — a change in employment status that is captured in the unemployment rate (from the Household Survey) but not in the job creation numbers (from the Establishments Survey).

This is the sort of statistical conundrum that gives me headaches on a regular basis, where you can understand the logic of why the data collectors count things the way they do but you can also see that the way they count things does not match feet-on-the-ground real life out here in the real world.

If you look at things that way — counting each new nonemployer business as a new job — then possibly you will understand why I’m so interested in the rate at which nonemployers have been growing over the last five and ten years, and the way that nonemployer growth has really accelerated since the turn of the century.

And, of course, none of this stuff addresses the amount of work created by microbusinesses (and farmed out on a project basis to other micros and nonemployers) — which is another important labor market contribution made by firms of all sizes that is not counted at all by the relevant parties.

You see, I think that one of the ways the 21st century economy is evolving is that the source of job creation is shifting from the company to the individual. That’s too big a change for many people to wrap their minds around at this point, especially those of us who are old enough to have been educated to be employees, and certainly too much change for the short-sighted people we tend to elect to public office.

But, looking at the numbers, that seems to me to be the way we may be heading.

Trish also wrote:

I love reading your narrative and highlights and viewpoints but I do wish I could pull up a page just with the pie charts and figures in comparison. Maybe you know of such a page. If not I would love to see it on your site and would happily link and write about it.

I don’t know of such a spot (although there probably is one) but I’ll tell you what, Trish. I’ll work on that (sounds kind of nifty) and I’ll let you know when it’s posted.

And thanks for writing.


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