Portrait of Oregon Businesses by Size of Firm



This article explores size of firm data from Oregon’s Quarterly Census of Employment and Wages (QCEW) program. QCEW data are cross-sectional, meaning they can be used to answer questions about how employment and wages are distributed among different-sized firms at a specific point in time. Comparisons of QCEW “snapshots” at various points in time can yield useful information about the changing importance of small and large firms in Oregon’s economy overall, and within specific industry sectors.

What do we need to know to interpret QCEW data?

The QCEW program collects information from quarterly tax reports filed by employers under Oregon unemployment insurance (UI) laws. Employers subject to UI reporting requirements account for approximately 95 percent of all Oregon employment. Oregon QCEW size of firm data are currently available from the first quarter of 2001 through the first quarter of 2011.

Defining what counts as a “firm” is a basic methodological problem and can greatly impact analysis and conclusions. This article defines a firm as “a single business, either corporate or otherwise, that may consist of one or more operating establishments in Oregon.” This definition is useful when discussing the impact a firm has on the statewide economy. It does have some limitations when comparing Oregon size of firm data with similar data for the nation as a whole, as we will see below.

This article uses size classes based on those found in most Bureau of Labor Statistics (BLS) publications. While BLS uses a total of nine size classes, data presented here have been combined into four size classes for ease of analysis. This article also follows BLS methods by using third-month employment data from private-sector employers to classify individual firms. For example, a firm reporting seven employees in March 2010 is placed in the “5-9” size class for the first quarter of 2010. Data on number of firms and wages at those firms are based on tax reports for the specified quarter and year.

Tables and graphs in this article will omit size class zero. There are various reasons why a firm might be counted in this category. In many cases an employer with an active UI account may simply have no employees for one or more quarters. It is also possible for a firm with employment and payroll in a particular quarter to report zero employees in the third month of the quarter, causing that firm to be counted in size class zero. There are some situations where wages are paid to employees who are not counted in the current quarter’s employment. This can happen, for example, in motion picture and video production or other industries where people are paid daily. It can also happen when residuals are paid to artists, or during events such as mergers, acquisitions, and reorganizations. While firms reporting no third-month employment represent approximately 15 percent of the total number of firms in the QCEW database, their impact on employment is zero by definition, and the total wages for these firms generally amount to less than 1 percent of total wages in Oregon.

It is important to recognize that QCEW size of firm data are cross-sectional rather than longitudinal. The figures presented here offer details about Oregon’s economy at specific points in time, but they do not describe dynamic processes such as job creation by firms of a particular size. This is because in QCEW size of firm data, firms are assigned to size classes independently from one quarter to the next, without attempting to account for the many ways businesses can change size over time. Despite such limitations, these data are valuable for understanding the relative importance of small or large firms in Oregon’s economy at specific points in time and within various industries.

Oregon Data for 2011

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Table 1

In the first quarter of 2011, Oregon had 89,316 private sector firms with at least one employee. Nine out of every 10 of these companies had fewer than 20 employees. The number of firms in each size class decreases steadily as the size class gets larger (Table 1).

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Graph 1

Although smaller firms are more numerous, they employ a proportionally smaller share of the total number of workers than larger firms (Graph 1). In early 2011, 1,307,244 private sector employees in Oregon were covered by Unemployment Insurance. Almost 75 percent of these jobs were in firms with 20 or more employees, although companies of this size account for just over 10 percent of the total number of Oregon firms.

The distribution of wages paid in Oregon follows a pattern similar to that of the number of workers. Oregonians were paid about $13.6 billion during the first quarter of 2011. About 80 percent of this payroll came from companies with 20 or more employees. Although the share of total wages for a given size class is fairly close to the share of total employment for that size class, the two are generally not equal. Among firms with fewer than 20 employees, the share of total wages falls below the share of total employment by 6.1 percentage points. The gap is slightly smaller in the 20-99 size class, where the share of wages trails the share of employment by 2.5 percentage points. Shares of employment and wages are virtually equal among firms with 100-499 employees, while among the very largest firms the share of total wages exceeds the share of total employment by 8.9 percentage points.

There is a striking contrast between the distribution of firms and the distributions of employment and wages by size class, but it is important to consider this in context. The figures presented here do not imply that smaller firms are underperforming when it comes to job creation, or that larger firms are experiencing a bonanza. By definition, firms that experience consistent growth will eventually be counted in the next-largest size class, as will all of their employees. On the other hand, firms that lose employees will pass into smaller size classes.

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Graph 2

Businesses expand, contract, or stay the same size depending on a host of factors. The purpose of QCEW size of firm data is not to track these dynamic processes through the years. Instead, these cross-sectional snapshots allow us to make comparisons by location, industry, and point in time, improving our understanding of the roles of small and large firms in Oregon’s economy.

Oregon Compared to the Nation

How do size of firm distributions in Oregon compare to data for the U.S. as a whole? Business Employment Dynamics (BED) data are compiled by the BLS from existing QCEW data, and include first-quarter distributions of private-sector firms and employment by size class at the national level.

The distribution of firms by size class in the first quarter of 2011 is very similar for Oregon and the U.S. The largest difference is in the smallest size class, where Oregon’s share of private firms is 1.5 percentage points higher than that of the nation as a whole. For every other size class, Oregon’s shares are slightly lower than shares at the national level (Graph 2). The vast majority of businesses have fewer than 20 employees, both in Oregon and throughout the U.S.

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Graph 3

Differences between Oregon data and national data are more pronounced when comparing employment distributions. In all but the largest size class, Oregon’s share of employment is at least five percentage points higher than the corresponding U.S. share. As a result of this shift, Oregon’s share of employment in the largest size class is more than 19 percentage points lower than the national share (Graph 3).

These differences are a natural result of the way firms are counted in BLS methodology. A company that operates in multiple states will be counted as one firm at the national level and classified based on its total number of employees in all states. For example, imagine a firm that has regional offices in all 50 states, with each regional office employing 10 people. At the national level this firm will be in the 500+ size class, while individual states will each count it in the 10-19 size class. All 500 of the firm’s employees will appear in the 500+ size class at the national level, while each state will count only 10 employees. It is far more common for a company to have 500+ employees throughout the entire United States than it is for a company to have 500+ employees in a single state. One consequence of counting firms in this way is that some of the employment attributed to smaller firms at the state level is actually associated with larger national firms. It is important to keep this in mind when seeking to understand the roles of small and large firms in Oregon’s economy.

Change Over Time: What can we learn from cross-sectional data?

Distributions of firms and employees by size class remain relatively stable from one year to the next. The share of the number of firms with 1-19 employees increased by 1.44 percentage points between 2001 and 2011, while the shares for all other size classes decreased by around one percentage point or less (Table 2).

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Graph 4

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Table 2

Firms with less than 20 employees increased their share of total employment by 1.34 percentage points over the same time period. Shares of employment in the 20-99 and 100-499 size classes decreased by about one percentage point, while firms with 500 or more employees increased their share by 0.48 percentage point. Employment levels within individual size classes tend to reflect overall trends in private sector employment (Graph 4).

The U.S. experienced two recessions in the past decade, the first in 2001 and the most recent from 2007 to 2009. In 2010, analysis of QCEW data showed that the distribution of firms and employees by size class did not change greatly during these two recessions in either Oregon or the nation as a whole. The share of firms in the smallest size class increased slightly during recessionary periods, as did the share of employment in the largest size class.

These observations are consistent with the figures presented in Table 2, and are likely connected with widespread layoff activity. As firms of every size cut jobs, some of them move into smaller size classes. Such changes are more evident in the smaller size classes, where even a small decrease in the number of employees can cause a firm to move into a smaller size class. On the other hand, firms that retain at least 500 employees remain in the top size class no matter how many workers they lay off, which may account for the slight increase in the share of jobs for this size class.

Industry Analysis

What is the relationship between industry and firm size? If we examine the distribution of employment by size class within various industry sectors, a simple but important fact emerges: jobs are not concentrated in the same sized firms for all industries (Graph 5).

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Graph 5

Small firms play a particularly prominent role in the construction and professional and technical services sectors. In the first quarter of 2011, firms with less than 20 workers accounted for 49.5 percent of private employment in construction and 47.9 percent in professional and technical services. Recall that among all industries combined, the share of employment in this size class was 26.4 percent.

Employment is somewhat more evenly distributed within the accommodation and food services sector. While firms with less than 20 workers still account for the largest share of employment, firms in the 20-99 size class hold a nearly equal share. Larger firms also play a significant role. Employment in the administrative and waste services sector is distributed still more evenly. Shares of employment for all size classes are between 20 and 30 percent of sector employment, though the distribution is skewed somewhat towards larger firms.

Retail trade is dominated by the largest firms. Companies with 500 or more workers employ more than twice as many people as any other individual size class in this sector. The distribution of employment in the health care and social assistance sector is similar to that of retail trade. Larger firms also employ the majority of workers in manufacturing, but the distribution is more even than in retail trade or health care. Still, firms with at least 100 workers account for almost two thirds of manufacturing employment, and firms with at least 20 workers account for 87.5 percent.

There is a connection between the distribution of industry employment within firm size classes and the definitions of the industries themselves. The North American Industry Classification System (NAICS) groups businesses into industries based on production processes and production technologies. For example, the manufacturing sector contains businesses “engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.” Manufacturing activities commonly take place in factories, mills, or similar facilities, and involve the use of power-driven machines and equipment.

By contrast, the professional and technical services sector is made up of firms engaged in activities where the expertise of the service provider is the major input. Firms in this sector include offices of lawyers, engineering services, advertising agencies, interior design services, and the like. It is certainly possible for a firm in the professional and technical services sector to employ 50, 100, or 500 people, as the figures in Graph 5 confirm. However, it makes intuitive sense that we would see fewer large firms here than in manufacturing, given the differences in the two industries’ production processes and production technologies. The data in Graph 5 support this intuition.

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Table 3

The discussion so far has focused on distributions of employment by firm size within industry sectors. These distributions provide useful information about individual industries, but we may also want to compare the relative prominence of various industry sectors among all firms of a particular size (Table 3).

In the first quarter of 2011, four industries accounted for more than half of Oregon’s private-sector employment among firms of all sizes (Table 3). Health care and social assistance employed 15.7 percent of private-sector workers, while retail trade employed 14.2 percent. Manufacturing came in third, representing 12.9 percent of private-sector jobs, and accommodation and food services accounted for 10.6 percent.

Distributions of employment by industry differ significantly within individual size classes. Health care and social assistance, retail trade and manufacturing dominated the 500+ size class in the first quarter of 2011. These industry sectors together accounted for almost two-thirds of all employment in firms with 500 or more workers. These three sectors were somewhat less dominant in the smaller size classes, although they still held significant shares of employment. For example, while retail trade employed 23.4 percent of workers in the 500+ size class, its share ranged from 9.7 to 12.3 percent in the other size classes. Manufacturing accounted for the third-largest share of employment in the 500+ size class, the largest share in the 100-499 size class and the third-largest share in the 20-99 size class. However, in the 1-19 size class the manufacturing sector employed only 6.1 percent of workers, the eighth-largest share in this size class.

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Table 4

Professional and technical services, construction, and other services were more prominent in the 1-19 size class than they were in any other size class in the first quarter of 2011. The other services sector accounted for 10.8 percent of employment in this size class, second only to accommodation and food services, and tied with health care and retail trade. By contrast, other services held the ninth-largest share of employment in the 20-99 size class, and only a 2.9 percent share of employment in the top two size classes combined.

The prominence of certain industries within individual size classes has changed over time. Table 4 compares distributions of employment by size class for selected industry sectors before and after the last recession. Shares that have increased by more than one percentage point are highlighted in green, while those that have decreased by more than one percentage point are highlighted in red. The most significant changes are in construction, manufacturing, and health care.

Construction

It is well known that the construction sector suffered heavy job losses during the recession, and we now know that construction employment is heavily concentrated in firms with less than 20 workers. Based on these facts, we might expect to see this sector’s share of employment in the 1-19 size class drop between 2007 and 2011. But how big is this drop, and how did construction do relative to other industries?

Table 4 reveals that before the 2007 recession, the construction sector accounted for 13.2 percent of employment in the 1-19 size class, a larger share than any other industry. In the first quarter of 2011, construction held the sixth-largest share, a loss of 4.2 percentage points. This sector also lost significant ground in the 20-99 and 100-499 size classes, while the share of employment among firms with 500 or more workers remained small but steady.

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Graph 6

What do these losses look like in the context of longer-term trends? From the first quarter of 2001 to the first quarter of 2011, the construction sector’s share of employment in all size classes combined dropped 1.1 percentage points (Graph 6). Over the same time span, shares of employment in the 1-19 and 20-99 size classes decreased by 2.5 and 1.5 percentage points, respectively. Shares in the larger size classes dipped by less than half a percentage point. The expansion of construction employment fueled by the housing bubble is visible here from 2004 to 2007. Firms with fewer than 100 employees experienced particularly large gains in their shares of size class employment during the boom years, but these gains were offset by even steeper losses during the recession.

Manufacturing

The recession also struck a blow to manufacturing employment. Jobs are concentrated in the larger size classes in this industry, and it is in these size classes that we observe the greatest decline in employment shares. Manufacturing accounted for the largest share of employment in the 100-499 size class both before and after the recession. However, this share slipped down 2.6 percentage points between 2007 and 2011. Among firms with 500 or more employees, the manufacturing sector’s share of employment dropped 3.8 percentage points between 2007 and 2011.

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Graph 7

Although the recession resulted in major job losses for both manufacturing and construction, the long-term trends in these two industries are quite different. Instead of a boom-and-bust pattern, the manufacturing sector’s shares of employment have tended to decrease in all size classes over the span of the data series (Graph 7). Job losses in firms with 100 or more employees have fueled this tend, with the greatest slippage occurring during recessionary periods.

Health Care

The increasing prominence of health care and social assistance across all size classes forms a counterpoint to the losses in construction and manufacturing. Health care has been called the “recession proof” industry. This is true in the sense that while most other industries were shedding jobs, the health care and social assistance sector continued to grow. In the first quarter of 2011, this sector captured significantly higher shares of employment in every size class compared with the first quarter of 2007.

The expansion of health care employment is part of a longer-term trend. Between the first quarter of 2001 and the first quarter of 2011, the health care and social assistance sector’s share of employment in all size classes together increased by a hefty 4.0 percentage points (Graph 8). Shares of employment in the 1-19, 20-99 and 100-499 size classes increased by between 1.8 and 3.1 percentage points each, while this industry’s share of employment in the 500+ size class gained a remarkable 8.5 percentage points over the decade.

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Graph 8

It is important to bear in mind that these impressive gains are the result of both steady employment growth in health care and episodes of contraction in other industry sectors. This is clearly visible in Graph 8, where the steepest increases in health care’s shares of employment generally coincide with periods of recession. For example, shares of employment in the 500+ size class increased sharply from 2001 to 2003, reflecting the impact of the 2001 recession. The upward trend then subsided for the next several years, until the onset of the Great Recession. From the first quarter of 2008 to the first quarter of 2010, the health care and social assistance sector’s share of employment in the 500+ size class rose 3.8 percentage points. By comparison, the manufacturing sector’s share of employment in this size class slipped 3.7 percentage points over the same period. However, in 2011 health care’s share in the 500+ size class was down half a percentage point from the year before, while manufacturing gained back 0.8 percentage point. It is reasonable to anticipate that the health care and social assistance sector’s share of overall employment will remain relatively flat as Oregon’s economy continues to recover. Different patterns within individual size classes may reflect the changing fortunes of prominent industries in those size classes.

Conclusions: What do we know now that we didn’t know before?

• Nine out of ten private-sector firms have fewer than 20 employees, both in Oregon and in the nation as a whole.

• Firms with at least 20 employees account for about 75 percent of Oregon employment and about 80 percent of U.S. employment in the private sector.

• Some of the employment attributed to smaller firms at the state level is actually associated with larger national firms.

• Jobs are not concentrated in the same sized firms for all industries.

• Distributions of employment by industry differ significantly within individual size classes.

• The prominence of certain industries within individual size classes has changed over time. There have been significant changes for small firms in construction, large firms in manufacturing, and firms of all sizes in health care and social assistance.

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