Employers large and small

Examines the role that small firms play in the American labor market. The authors seek to dispel two commonly held misconceptions: that small businesses generate the vast majority of jobs and that small business owners face limited political influence. Empirical data from the U.S. Small Business Administration, the Bureau of Labor Statistics, and the Census Bureau for the mid-1980s as well as privately collected data are reviewed to determine the differences between large and small firms as employers. The share of new jobs created by small firms, the percentage of the workforce employed by small firms, and the longevity of jobs created by small firms reveal that while these firms are responsible for a disproportionate share of new jobs, small firm employment share has largely remained constant. This results from the fact that new firms, and the new jobs they produce, tend to be small; small firms do not often produce new, long-lived jobs. Compensation and working conditions are reviewed. Although small firm wages tend to be lower, the traditional explanations -- more favorable working conditions at small firms, union avoidance, and discouragement of shirking -- are shown to have minimal explanatory power. Rather, lowered non-labor input prices for large firms enables those firms to pay higher wages. Quit rates and applicants-per-vacancy reveal that intangibles such as job satisfaction fail to explain the compensation differential. Unionization rates and union desirability among employees reveals that small firms could be prime targets for organizing drives. Lastly, the political influence of small businesses and the wisdom of governmental aid to small businesses and statutory exemptions or lax enforcement are critically assessed. (CAR)