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Hiring at firms, large and small


The Great Recession, with its layoffs and slow hiring, drastically decreased the employment rate. But not every firm behaved the same, and there are striking patterns across firm size. At small firms, employment fell by less and recovered to pre-recession levels more quickly than at large firms. The graph shows this consistent pattern through the firm-size distribution. (Note that the level of employment for each size category is normalized to the level in December 2007, just before the recession.)

Employment at the smallest firms (1 to 19 employees) fell by 2.7% at the nadir in June 2010 and then recovered by February 2012. Employment at the largest firms (1000+ employees) fell by 12.7% at the nadir in January 2010 and has only just recovered to pre-recession levels. The peaks are also different: At large firms, employment began declining in the spring of 2006, though it was slow at first. At the smallest firms, employment began to fall only in the autumn of 2008.

What makes small and large firms different and how does this explain the very different experiences during the Great Recession? This behavior is consistent with a job ladder across firms, a line of research explored extensively by Giuseppe Moscarini and Fabian Postel-Vinay: If larger firms tend to be more productive, they can offer higher wages and attract workers from smaller, less-productive firms. As the cycle turns downward, they no longer pursue new workers, as workers are less profitable. This means that growth at large firms slows down because they’re hiring less, but small firms stay the same size because they lose fewer workers. Yet, small firms are often thought to be more sensitive to credit conditions. While large firms can use retained earnings to fund operations to a point, small firms may require outside capital. It’s surprising, then, to see relatively robust employment levels at small firms despite difficulties in credit access associated with the Great Recession.

How this graph was created: Go to “Categories -> ADP Employment” and select “Nonfarm Private Payroll Employment” at various firm sizes: (1-19), (20-49), etc. Add the series to the graph. In the “Edit Graph” tab, change the units to “Index” and scale to December 2007. Select “Copy to All” to apply this transformation to all of the series.

Suggested by David Wiczer.

View on FRED, series used in this post: NPPTL1, NPPTL2, NPPTM, NPPTS1, NPPTS2


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