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Why Americans Are More Likely to Work for a Large Employer, in 20 Charts

Originally published by Theo Francis, Wall Street Journal [link] on April 06, 2017



The United States has long held itself out as a nation driven by entrepreneurs and small businesses. Presidents and politicians still invoke that image, and for generations, it was largely accurate.

Today, the U.S. has become something different: a nation of employees working for large companies, often very large ones.

In the late 1970s, an American employee was more likely to work at a company with fewer than a hundred workers than one that employed 2,500 or more. Today, Americans are more likely to work for the larger firms.

More than a quarter of all U.S. employees worked at firms employing at least 10,000 people in 2014, the most recent year for which the Census Bureau has released comprehensive data.



Huge companies dominate American economic life well beyond employment. They ring up a disproportionate share of sales for goods and services, both to consumers and to other businesses.

Scale alone isn’t bad. It can bring substantial efficiencies. National cellular providers can spare customers the complexity and expense of roaming charges. At the same time, scale begets scale as big companies reinforce one another. Big retailers prefer big distributors. Big manufacturers need big suppliers.

Over time, economists say, nimble new companies should form to challenge sprawling incumbents. That isn’t happening as much these days. Young firms often fail or are absorbed by existing giants. The problem now is that business formation has slowed.



"It's almost like trying to run up a mountain—the farther you go and the bigger you get, the fresher the air is and the easier it is to move," says Jimmy Edgerton, whose four-year-old snack company, Watusee Foods, had to piggyback on much larger operations to get the attention of distributors supplying large supermarket chains. "Everything gets simpler."

Says Ian Hathaway, a former Federal Reserve economist now at the Brookings Institution: "Companies are getting big because they're winning."

The shift, while broad-based, is starker in some corners of the economy than others. Through 1980, most retail employees worked at companies with fewer than 100 workers. The rise of big-box stores changed that, with big companies growing to account for nearly half of all retail jobs.

Even in the service sector, where restaurants and other small outfits still predominate, large firms are rapidly gaining ground.

That’s also happening in the financial sector, which includes insurance and real-estate companies.

Some sectors have bucked the trend. In manufacturing, employers large and small have pared their workforces. The largest employers have done so faster.

In construction, the smallest employers continue to employ the most workers, despite the industry's sharp contraction after the housing bust.

But the sectors dominated by small companies are themselves a relatively small, and shrinking, slice of the workforce.

Agriculture, mining and construction together provided about one job of every 20 in 2014. Manufacturing provides not quite one in nine.

Where there have been significant gains in U.S. jobs, big companies are gaining the most ground.

That has implications for American incomes.

For generations, employees of big firms made more than workers in similar jobs at smaller firms, thanks to what economists call the size premium.

That still is true, but not to the same degree. One factor: Within smaller firms—those with between 100 and 1,000 employees—pay has risen at similar rates for most workers, according to researchers who have analyzed Social Security pay records. At the biggest firms, employing 10,000 or more, the highest-paid workers have seen far bigger pay increases than other employees. Even workers in the middle of the pack—those at the median—have seen pay increases stall, the researchers found.



In the past, at large companies "the spoils of war were spread around the firm," says Stanford University economist Nicholas Bloom, who did the analysis with other researchers at Stanford, the Social Security Administration, the University of Minnesota and the University of California, Los Angeles. "They used to pay 30% more, all else equal, and now they pay about 10% more."

To see these shifts at work, look to the rear counter of the nearest pharmacy.

The drugstore business has long nurtured sprawling chains, but in recent decades their reach has grown longer still.

Together, the top four firms rang up $7 of every $10 spent at drugstores in 2012, the most recent year for which the Census has measured market share. The next 46 biggest firms together took in only 44 cents for every $10.

When Bonnie Chih graduated from Washington State University's pharmacy school in Spokane last spring, she and her classmates entered a job market dominated by the national brands. "I don't think I could ever work at a chain," she says. Most of her classmates did.

Just nine went to work at independent, hospital or clinic pharmacies, according to data collected around graduation. Fifty-two went to chain stores, most of them run by the giants. (About two dozen graduates continued their training.)



Stand-alone drugstores, chain and nonchain, are facing increased competition from pharmacies inside grocery and other stores, including Wal-Mart Stores Inc., the National Association of Chain Drug Stores said.

Still, prescription sales growth at chain drugstores has matched or outstripped those competitors between 1997 and 2015, data from the association show.



Representatives of the biggest drugstore chains declined to comment or referred questions to the industry association, which called the sector highly competitive and dynamic.

Drugstore pharmacists averaged $120,050 in compensation last year, according to Bureau of Labor Statistics figures. That is up by a third from a decade earlier, roughly mirroring the rise in average wages for all jobs during that period.

Other pharmacists fared better.

"Retail pharmacists are in massive chains," Prof. Bloom says. "They're kind of mid-skill employees. As we'd expect, their pay really has not done well."

Drugstore association spokesman Chris Krese says rising ranks of pharmacy-school graduates have depressed wages more than market concentration has.

In industry after industry, the biggest players are taking in a higher share of revenues than they did at the start of the century, a Wall Street Journal analysis of the most recent Census data show. Census data break economic activity down into more than 1,400 categories representing different groups of industries. In most of those categories, the eight largest firms collected a bigger share of total sales in 2012 than in 2002.



In some cases, market share for the top four firms jumped 15 percentage points or more.



Two sectors didn't see a broad rise in market concentration: for-profit education, where roughly equal numbers of industry categories became more and less concentrated, and wholesale trade, where about 60% have become less concentrated, including distributors of tires, linens, glass and lawn furniture.

New firms aren't springing up in the same numbers to challenge existing firms or, as has typically happened, generate significant numbers of new jobs. Indeed, the net number of new business locations opening each year has remained fairly steady, even as the number of jobs they generate has declined.



The combination, says Mr. Hathaway, the economist, could prove worrisome in the long run. Big firms alone aren't bad. But a concentration of sales and profits, if it discourages or prevents competition, could be.

"I am more concerned about the fact that profits are soaring," Mr. Hathaway says. "That, to me, means that maybe these businesses have created a safe moat at this point, and they feel protected."


Correction: A graphic showing employment by employer size shows the number of employees in millions. A previous version of the graphic incorrectly showed percentages. (April 6)

Angela Calderon, Graphics Editor Chris Canipe, Design and Development