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By Jason Stipp | 04-11-2012 12:00 PM

Are Big Companies Holding Back the Employment Recovery?

Outsourcing, international hiring, and new technologies are keeping a lid on big U.S. company employment growth, but large firms are still playing a role in the job recovery.

Jason Stipp: I'm Jason Stipp for Morningstar. Employment data has indicated to us that small and medium-sized businesses have been responsible for much of the employment recovery that we've seen so far.

So are big businesses holding back a more robust employment recovery?

Here with me to discuss is Morningstar's Bob Johnson, director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So let's set the stage and talk about small businesses versus large businesses and how much of the employment market they encompass. The numbers might surprise you.

Johnson: Absolutely. When I looked at them and calculated them for today, I was surprised at how big the gap was myself.

Large corporations, those with over 500 employees, make up only 16% of all employment. So I found that to be really pretty dramatic. And then, you've got the small businesses [50 or fewer employees] at the other end that are about 45%, and in between, the midsized businesses between 50 and 500 [employees] is about 39%. So really the small and medium are the bulk of the employment in the economy.

Stipp: We often hear that it's these smaller businesses that really are the drivers of the economy, but do you think it's quite as simple as that? Obviously, the large businesses have a lot of business transactions that are going on [that may also affect the labor market]. What's the real story there?

Johnson: I think it gets very complicated. You look at the data, and the small business, medium business and large businesses all move at about the same time, and maybe there's something common driving all of them, but certainly employment seems to be across all three at the same time, and it's usually not one totally dominating the other.

Now that said, small business in general tends to grow a little bit faster, and the large businesses grow at a much slower rate--right now they are running at about half the rate in large business employment as they are in small business employment.

Stipp: Could it be that a large business, maybe it's not hiring, but it might be spending money and contracting or using vendors--and that could actually create growth in small businesses. It's just the big businesses aren't actually doing the hiring themselves. They are outsourcing it, so to speak.

Johnson: That's correct, and that's true in a lot of cases that big businesses will outsource something ... And over the last few years, there's been a trend: They always [used to] have a big advertising departments and now they don't; they outsource it all. They might have had somebody inside that was a janitor; now they hire a cleaning service.

So all of those things have probably made the trend look a little bit more dramatic than it is. The reason is that the large businesses are focusing on their core, what they do best, and outsourcing the rest of it to small businesses. So that's why I think you've seen a little bit more growth in the small businesses.

Now you've got things like Google or Facebook--I guess those didn’t stay small businesses for too long--but some of those more creative, innovative businesses at the bottom help [small-business employment growth], but they quickly fall out of the small-business category.

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