The Declining Average Size of Establishments: Evidence and Explanations is a wonky article from the U.S. Bureau of Labor Statistics (BLS) that shows the average size of small businesses has been shrinking for the last decade or so.
The key data from the report is on the size of startups:
The average size of establishment births (new startups, excluding seasonal businesses)in the 1990s was around 7.6 employees, whereas the average size of births fell from 6.8 employees in 2001 to 4.7 employees in 2011.
This is the primary, but not only, reason the average size of a U.S. small business has also been getting smaller. After peaking at almost 23 employees in the late 90s, the average small business had about 21.7 employees in 2011.
This doesn't sound like much, but since there are about 4.8 million small employer businesses in the U.S., this decline means there are about 5 million fewer jobs than if this decline had not happened.
For those keeping score, adding 5 million jobs would drop our current unemployment rate from 8.2% to 4.9%.
So what's caused this decline? Despite the title of the article, they don't really provide an explanation.
But the explanation is pretty clear:
1. Technology and automation has reduced the need for employees.
2. Outsourcing has reduced the need for employees.
3. The use of contingent workers has reduced the need for employees.
We've long forecast that small businesses would get smaller (at least in terms of employment) and more numerous. This data is another indication this is happening.
See our recent article Industry Structures - Big Get Bigger, Small Get Smaller for more on this topic.