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2 Big Employment Trends You Need to Know

I came across two really interesting employment trends this week that everyone should know about.


The first is from blogger Evan Soltas, who uses ADP employment data to show job losses (and ensuing gains) since the recession began in 2007 based on company size. In short, small companies laid off a moderate percentage of workers and have resumed hiring fairly quickly, while big businesses made deep cuts and have basically flatlined ever since. I've re-created his chart here:

Sources: Federal Reserve and author's calculations.

Some color here: From 2007 to 2010, small businesses cut 5.5% of their workers and have since grown payrolls by 3.7%. Big businesses cut 8.5% and have since expanded their workforces by 1%.

What's interesting is that this goes against a frequent chant: That small businesses are unable to expand and hire because of a lack of lending by banks, while large companies are flush with credit. If credit is a deciding factor in hiring, the trend has distinctly been the other way around.

ADP's data only go back about a decade, so it's hard to see how these numbers have played out in the past. But here's what we know: The majority of job growth over the long haul is not driven by small businesses per se. It's driven by new businesses, nearly all of which happen to be small. Greg Ip points out the distinction in his book The Little Book of Economics:

Small companies destroy just as many jobs as they create; they aren't disproportionate job creators. By contrast, new companies do create a surprisingly large share of new jobs. A 2009 study by Dan Strangler and Robert Litan of the Kauffman Foundation found that if you took out firms that were five years old or younger, employment would contract most months. So job creation tends to be primarily the product of entrepreneurs who have a crazy idea for starting a new company.

Next comes from Matt Yglesias of Slate. He points out that the employment-to-population ratio for men -- the share of working-age (15-64) men who have a job -- has failed to recover to its pre-recession high in each of the last seven recessions. That spans back to the early 1960s:

Not all of this is indicative of a weak labor market -- the late '90s was about as good as it gets for job seekers. Part is due to a surge in college attendance. Part is aging baby boomers taking an early (pre-65) retirement. Part is men voluntarily becoming stay-at-home dads as women enter the labor force.

But the fact that the biggest declines occur during recessions, and those declines never seem to recover to their previous peak, strongly hints that a lot of the long-term decline is due to a poor economy.

One explanation for this is changes in the types of jobs that are available. Employment in the 1950s and 1960s was driven in large part by manufacturing, which could be physically intensive and tended to give males an advantage over females. Ever since the 1980s, it's been the opposite. Manufacturing jobs have been on the wane, and information jobs where gender should play no role in ability have made up most new positions. That's been amplified by a smaller percentage of males attending college compared with females. "Women were earning about 166 associates degrees and 135 bachelor's degrees for every 100 earned by men in 2007," The Wall Street Journal reports, citing data from the Department of Education. Last year, women surpassed men in graduate degrees as well. For adults over age 25, 10.6 million women now have a master's degrees or higher, versus 10.5 million for men. Keep that up, and this chart might keep marching down.

What do you think?

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2012, at 1:08 PM, XMFCane wrote:

    Excellent article, Morgan.

    It's interesting to see the hiring trend of the large corps since the recession when some of the largest sit atop huge piles of cash. Speaks volumes about the psyche of the market and the uncertain economic climate.

  • Report this Comment On July 12, 2012, at 1:51 PM, TMFDarwood11 wrote:

    Great article, and very interesting.

    As a small business owner for over 30 years, and someone who worked in small businesses prior to that, and whose customers and competitors included some large multi-nationals, I concluded that larger businesses are more risk averse than mine was. That knowledge did provide me with some psychological business advantage.

    In fact, during the recessions of the early 1980s I made some very difficult choices and took on additional risk so as to expand my business. This was at a time when larger businesses were pulling their teeth in and rallying around the wagons. I had decided that was the only way to survive! By doing so I was able to expand into some additional areas and take on customers in differing industries. It was difficult but it worked.

    I'm not sure that the average large business CEO will or would do what I did. But as a small business, my good fortune or bad was tied to my company, and I was committed to make it work. I also had a vision for the company and I also saw a purpose in providing an opportunity for others to excel. To do so, it was clear to me that I would have to make some difficult and uncomfortable decisions from time to time.

    Things have changed in recognition of my age. I no longer have 10 or 20 years to recover from the latest economic malaise and after observing our hapless politicians destruction of the wealth of much of this country, I altered my strategy.

    So I made a decision a few years ago to downsize through attrition and this was before and in anticipation of "the Great Recession."

    As a boomer in my late 60s I'm possibly doing what many other boomers of my age are doing and this is minimizing certain types of business risks.

    It is unfortunate but as a consequence I am contributing to the malaise of the economy. That was another difficult decision. However, I have decided to spend the rest of my working years as a consultant and the only employee of my business. This provides me to make some choices about my personal life which were unavailable when I was a prime driver in the business and responsible to the employees for the outcome of my decisions.

  • Report this Comment On July 12, 2012, at 5:42 PM, TXRob wrote:

    It would be very interesting to see that second chart with another line showing the same statistics for women, as well as a composite.

  • Report this Comment On July 13, 2012, at 3:34 AM, atking wrote:

    Unemployment benefits: these have to be factored in.

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