Most job creation comes from small firms--and so does most job destruction. The Congressional Budget Office has a useful summary of the evidence in a short March 2012 report, "Small Firms, Employment, and Federal Policy." Here are some basic facts about firm size and employment. In 2011, firms with more than 1,000 employees were 0.2% of all firms, but 38.6% of all private-sector employees. Conversely, firm with fewer than 19 employees make up 87.5% of all firms, but have 18.4% of total employees. Here's the detailed table.
The share of private sector employment by firm size has barely budged in recent decades. The share of employment in very small enterprises of 1-19 employees is down a few percentage points, and the share of employment at the largest employers of over 500 employees is up just a touch, but the overall stability of these patterns is remarkable.
Studies of the effect of small firms on employment often seem to reach mixed results. One reason becomes clear if you think about this figure for a moment. If small firms grow enough in size, they aren't small any more. So does that mean that small firms stop contributing to employment growth if they get larger? Conversely, imagine a large firm in a death spiral, bleeding employees until it becomes a smaller firm. Does this now become an example of a small firm that is losing employees? If people are laid off at big firms, and then try to start small companies, is this evidence of the dynamism of small firms--or of a sick economy?
The emphasis in recent studies of small firms and employment is in adjusting for the age of the firm. Here's the CBO explanation (footnotes omitted):
"It is widely believed that small firms promote job growth. In fact, small firms both create and eliminate far more jobs than large firms do. On balance, they account for a disproportionate share of net job growth—however, that greater net growth is driven primarily by the creation of new small firms, frequently referred to as start-ups, rather than by the expansion of mature small firms. ...
"Recent research, however, has found that it is young small firms, especially start-ups, that grow faster—and consequently create jobs at a higher rate—than either large firms or established small firms do. One study found that the smallest firms, those with between one and four employees, grew 4.7 percent faster than the largest firms, those with more than 10,000 employees. However, when the comparison is made between firms of the same age, small firms grow more slowly than large firms do.
"Almost all firms start small. Many fail and, of those that do survive, most have no desire to expand beyond “small firm” status. Only a few grow substantially and become large firms. Thus, the faster average growth of young small firms is driven by the ambitions and successes of a fairly narrow set of start-up employers."
In other words, the issue isn't about small size, but rather about whether the firm is in a line of business that offers possibilities for dramatic expansion. Many small firms like certain retail stores or various personal and professional services, don't have much potential to expand substantially, and aren't really seeking to do so. I remember a venture capitalist, who would be expected to be sympathetic to good news about small firms, once telling me: "The thing you need to remember about small firms is that a lot of what they do is sell to bigger firms." I'm not sure that statement is true about small firms in general, but I think it was true in terms of what he was looking for: that is, firms that were currently small but had potential to link to a much wider market.
The U.S. job market has long been famous for its "churn" -- that is, the simultaneously large inflows and outflows out of jobs which suggest a fluid and adjustable labor market. Thus, it's disturbing to observe a long-term trend toward less churn in the U.S. labor market. Here's a figure using the Business Dynamics Statistics from the Bureau of Labor Statistics:
Here's commentary from the Economic Report of the President: "The rates of both gross gains and gross losses have been declining over time. Whereas, on average, 18.2 percent of private-sector jobs in the 1980s were newly created positions in startups or expanding firms, gross job gains fell to 16.8 percent of total private-sector employment in the 1990s and to 15.8 percent between 2000 and 2009 (Figure 6-3). Similarly, gross job losses were slightly more than 16.2 percent of overall private-sector employment in the 1980s but fell to 14.9 percent in the 1990s and then remained largely the same between 2000 and 2009. These secular declines also are apparent when one focuses more narrowly on startups."
Here's a similar pattern from another source: quarterly data from the Business Employment Dynamics (BED) survey.
What explains this drop in job churn over time, and is it a cause for concern? The report says (citations omitted): "Now that researchers have documented the long-term secular slowdown in job gains and losses, the underlying reasons for the slowdown and its implications for the future of the U.S. economy are fast becoming the subject of an active debate. One possible reason for the slowdown in job reallocation is the aging of the population. Older workers may be less likely to become entrepreneurs, and research has documented a positive correlation between worker age and job tenure."
An aging workforce probably is part of the explanation. But one also wonders if there isn't another dynamic at work: for a variety of reasons, it may be getting harder to start up a business in the United States, and harder to be an employer. In turn, workers perceive fewer outside opportunities, and become more likely to stick with their present job. Or perhaps the U.S. labor market is becoming less fluid and adjustable in other ways.
President Obama and many others have called for a dramatic increase in the number of U.S. students obtaining four-year and community college degrees. It's a popular goal, and easy to announce, but frankly, quite unlikely. Higher education as currently constituted is extremely expensive, and neither the federal government, nor state government, nor prospective students are flush with the needed funds. In addition, many of those not currently attending higher education aren't prepared to flourish in that setting, whether because of lack of academic preparation, lack of interest, or both.
Bruce Bosworth lays out the problem and limns a possible pathway in "Expanding Certificate Programs" in the Fall 2011 issue of Issues in Science and Technology. Here are some excerpts:
The underlying problems of stagnating workforce skills and the unlikeliness of college enrollment expanding quickly enough.
"Given current trends, the nation can expect little gain in the educational attainment of the workforce by 2040, at least as a consequence of young adults moving into and through the labor force. Older workers (ages 35 to 54) are now as well educated as younger workers (ages 25 to 34), especially in the percentage with at least a high-school degree, but also in the percentage with some postsecondary attainment. Thus, there will be no automatic attainment gain over the next several decades as current workers age and older workers leave the labor force. In fact, without some big changes in educational patterns, it is probable that the newer workers entering the workforce will have lower levels of attainment than the older workers leaving. Workforce attainment levels will stagnate or decline, and future economic growth will slow as a consequence."
"In the face of these trends, President Obama proposed to Congress in 2009 that “by 2020, America will once again have the highest proportion of college graduates in the world.” ... According to evaluations led by the National Center for Higher Education Management Systems, retaking international leadership would require U.S. college attainment rates to reach 60% in the cohort of adults ages 25 to 40. But in 2008, only 37.8% of this age group had degrees at the associate’s level or higher, and at present rates of growth, this figure would increase to only 41.9% by 2020. Closing the gap will require a 4.2% increase in degree production every year between 2008 and 2020."
Certificate programs are growing quickly.
"Certificate programs take a variety of forms nationwide. They are offered by two-year community colleges, by four-year colleges, and, increasingly, by for-profit organizations. Programs vary in duration, falling into three general categories, with some requiring less than one academic year of work, some at least one but less than two academic years, and some requiring two to four years of work. The programs collectively awarded approximately 800,000 certificates in 2009, up more than 250% from the roughly 300,000 certificates awarded in 1994. Across all programs, awards are heavily skewed toward health care, which represented 44.1% of all certificates awarded in 2009."
A Florida study suggests that certificate programs are paying off, especially for students who don't traditionally attend college.
"A study of educational and employment outcomes for students in Florida also has suggested that certificate programs, in addition to leading generally to good economic outcomes for completers, may have particular advantages for students from low-income families. The study drew from a longitudinal student record system that integrates data from students’ high-school, college, and employment experience. It followed two cohorts of public-school students who entered the ninth grade in 1995 and 1996.
"The research suggested that strong earnings effects of degree attainment (associate’s, bachelor’s, and advanced) were largely confined to students who had performed well in high school. They were continuing in postsecondary study a trajectory of success apparent in high school. However, the research found that obtaining a certificate from a two-year college significantly increased the earnings of students who did not necessarily perform well in high school, relative to those who attended college but did not obtain a credential. These students were finding new success in certificate programs, changing the trajectory of their high-school years. Moreover, the study confirmed other research that found strong returns to completion of good certificate programs, even relative to associate’s degree completers.
Across all certificate programs, the field of study is an important predictor of earnings outcomes. In some fields, individuals who complete long-term certificates make as much money, on average, as those who complete associate’s degree programs. This seems to be because certificate completers pursue and earn awards in fields with relatively high labor market returns and then take jobs where they can realize those returns. Many individuals who gain associate’s degrees do not go on to higher attainment, and a significant number of them hold majors in areas that offer limited labor market prospects for job seekers with less than a bachelor’s degree."
The Tennessee model of certificate programs
"Tennessee provides a clear example of what is possible and of what works. Tennessee has a statewide system of 27 postsecondary institutions that offer certificate-level programs serving almost exclusively nontraditional students. The Tennessee Technology Centers began as secondary-level, multidistrict, vocational technical schools in the 1960s under the supervision of the State Board of Education and began to serve adults in the 1970s. In most states, analogous institutions were merged into community- or technical-college systems, but in Tennessee (as in a few other states) they continue to operate as discrete non–degree-granting postsecondary institutions.
The technology centers award diplomas for programs that exceed one year in length, as well as certificates for shorter programs. Diploma programs average about 1,400 hours and some extend to more than 2,000 hours. They are designed to lead immediately to employment in a specific occupation. In 2008–2009, the centers enrolled roughly 12,100 students, and they awarded 4,696 diplomas and 2,066 certificates. Collectively, the centers offer about 60 programs, some just at the shorter-term certificate level but most at the longer-term diploma level. Some of the more popular diploma programs are Practical Nursing, Business Systems Technology, Computer Operations, Electronics Technology, Automotive Service and Repair, CAD Technology, and Industrial Maintenance.
Most students in the centers are low-income, with nearly 70% coming from households with annual income of less than $24,000 and 45% from households with annual income of less than $12,000.... The average age of the students is 32 years ... According to 2007 IPEDS data, 70% of full-time, first-time students in the centers graduated within 150% of the normal time required to complete the program. Every year for the past several years, at least 80% and sometimes as many as 90% of students who completed the program found jobs within 12 months in a field related to their program. ...
A growing consensus in Tennessee holds that the key explanation for the centers’ high completion rates can be found in the program structure. The centers operate on a fixed schedule (usually from 8:00 a.m. to 2:30 p.m., Monday through Friday) that is consistent from term to term, and there is a clearly defined time to degree based on hours of instruction. The full set of competencies for each program is prescribed up front; students enroll in a single block-scheduled program, not individual courses. The programs are advertised, priced, and delivered to students as integral programs of instruction, not as separate courses. Progression though the program is based not on seat time, but on the self-paced mastery of specific occupational competencies. ... The centers also build necessary remedial education into the programs, enabling students to start right away in the occupational program they came to college to pursue, building their basic math and language skills as they go, and using the program itself as a context for basic skill improvement."
The U.S. economy needs to build bridges from those who perform near the median and lower in high school to at least somewhat skilled jobs in the workforce. I'm sure there are other promising ideas besides certificate programs. For example, I posted last October 18 on "Apprenticeships for the U.S. Economy," and last November 3 on"Recognizing Non-formal and Informal Learning." But trying to push most or many of these median-and-below high school students through a conventional higher education degree is not likely to work well, and would be extremely expensive. Time to start experimenting with policies that could offer a better ratio of benefits to costs.
Anthony P. Carnevale, Ban Cheah, and Jeff Strohl of the Georgetown Center on Education and the Workforce have published "Hard Times: College Majors, Unemployment, and Earnings." The main focus of the report is to look at what people majored in in college, and then to compare unemployment and earnings between majors. Before showing some highlights, two warnings are appropriate.
First, the data behind these figures is from 2009 and 2010. The study compares recent college graduates who are 22-26 years of age, experienced workers who are 30-54 years of age, and graduate degree holders who are limited to 30-54 years of age--all from the 2009 and 2010 data. But how things looked in 2009 and 2010 may not be a good predictor of the future: for example, recent architecture graduates were doing poorly in the aftermath of the housing market collapse in 2009 and 2010, but that wasn't true back in 2005.
Second, the classic problem in thinking about benefits of education is to isolate cause and effect. The problem is that those who go on to get additional years of education may well be different in a number of ways: for example, they may have more persistence in their work habits, or they may come from a social background with higher expectations of educational achievement, or they may have higher intelligence in a way that makes it easier for them to perform well in school, or they may be better at deferred gratification, or they may have other personality types that flourish to greater extent in an educational setting. Thus, when you see that, on average, people with a college degree have higher income than those with a high school degree, or that those who major in chemistry have higher income than those who major in English, it would be highly unwise to attribute all of the income gap just to what courses they took. If you could somehow transplant the characteristics of all the chemistry majors into English majors, and vice versa, the resulting income gaps might look quite a bit different.
So here is one figure showing unemployment rates by major, and another figure showing earnings rates by major. In each figure, there are separate marks for recent graduates, experienced graduates, and those who hold graduate degrees.
As noted earlier, one shouldn't overinterpret these results. But when looking at unemployment rates, along with the architects, those who majored in humanities or in in the arts have relatively high rates, while those who had majored in health and education had relatively low unemployment rates.
When it comes to income, the highest income levels are for those who majored engineering, computer science/mathematics, life sciences, social sciences, and business. The lower income went to those majoring in arts, education, and psychology/social work.
Most Americans don't think of themselves as living in a lucrative destination for tourism. Moreover, after the terrorist attacks on 9/11, procedures for anyone visiting the United States were understandably tightened. But partly are a result of not perceiving the opportunity and partly as a result of overcautiousness, the U.S. economy is missing out on the potentially job-rich growth of international tourism.
A few months ago, I touched on this theme when writing about "Where Will America's Future Jobs Come From?" A McKinsey Global Institute report looked at opportunities in different sectors for job creation and noted: "[T]o reach the high-job-growth scenario, the United States needs to retake lost ground in global tourism. ... In particular, the United States is not getting its share of tourism from a rising global middle class. More Chinese tourists visit France than the United States, for example."
"Between 2000 and 2010, the international long‑haul travel market grew by 60 million travelers each year. And yet, in 2010, the United States attracted essentially the same number of travelers as in 2000. International travel remains one of the few bright spots in the global economy, generating exports worth $1.1 trillion and supporting more than 96 million jobs worldwide in 2010. Despite the fragile economic recovery, global travel spending continues to grow at impressive rates, leading some economists to describe it as a “gold rush.” ... Over the coming decade, long-haul arrivals are forecast to rise by an additional 40 percent. Global travel spending is forecast to double between 2010 and 2020, reaching $2.1 trillion and making travel an increasingly important contributor to GDP growth for countries able to attract more overseas visitors."
"Lawrence Summers, former director of the National Economic Council, recently observed that “the easiest way to increase exports and close the trade gap is by increasing international travel to the U.S.” In fact, international travel is already the United States’ largest industry export, representing 8 percent of U.S. domestic exports of goods and services in 2010 and nearly one-fourth of services exports alone." "Therefore, the United States should make it a national priority to restore our share of the global long-haul travel market, currently at 12 percent, to the 2000 level of 17 percent. Achieving this goal by 2015 and sustaining it through 2020 would add nearly $390 billion in U.S. exports over the next decade and create 1.3 million more American jobs by 2020."
"[T]oday 35 percent of overseas visitors to the United States require an entry visa. Looking forward, that number is expected to rise to 51 percent. Put another way, the greatest growth in the world travel market is expected to occur in countries where the U.S. is already unable to meet existing demand for visas. The visa system is undermining our ability to compete for travel exports."
"Overall, the entire visa application process from end to end can take as long as 145 days in Brazil and 120 days in China. In comparison, the United Kingdom takes an average of 12 days to process visas in Brazil and 11 days in China. ... In our survey, more than 40 percent of Chinese respondents, 35 percent of Indian respondents and 29 percent of Brazilian respondents cited visa costs as a barrier. For millions of overseas travelers seeking admission to the United States, the $140 application fee for a U.S. visa represents just the tip of the iceberg. Travelers must also pay additional fees that vary from country to country, but can add as much as $50 to the application fee. On top of these fees, travelers who do not live in a city where a U.S. consulate is located must incur hundreds or thousands of dollars in expenses (and take time off from their work or studies) to complete the mandatory face-to-face interview. In Brazil, for example, just one embassy and three consulates serve a country spanning 3.3 million square miles with a population of 199 million. Eleven cities with more than one million inhabitants do not have a U.S. visa-processing center. The lack of accessibility to consular offices is an even bigger issue in China, where the United States has just five visa processing operations serving a much larger market. Indeed, there are 27 cities in China and eight in India with more than two million inhabitants that do not have a U.S. visa-processing center. By comparison, the United Kingdom has 12 visa facilities in China and 10 in India, while France has six in China and five in India."
"Among all overseas travelers to the U.S., those from China, India and Brazil rank first, second and fourth, respectively, in spending. Because of these high levels of traveler spending, one visitor from India is roughly equal to two visitors from the United Kingdom, Germany or France in terms of average spending."
The U.S. Travel Association report starts with a provocative comparison that sums up the effects of these barriers imposed by the current visa process: "Imagine an overseas biker desperate to own a Harley-Davidson—a purchase that would increase U.S. exports and improve our trade balance. Unfortunately, his government has put in place several barriers that make it more difficult and expensive to purchase this American cultural icon. Before he can even place his order, he must wait several weeks for an interview and travel hundreds of miles to a distant government office to get to an appointment. On top of that, he must pay $140 up front just to request the opportunity to purchase a Harley, with no assurance he will actually be able to buy one. ... If any foreign government even attempted to create such onerous barriers to U.S. exports, members of Congress would instantly threaten trade reprisals; U.S. government trade lawyers would quickly file legal actions with the World Trade Organization; and government policymakers at all levels would search to find a way to end these restrictions. Amazingly, the United States has imposed almost exactly these types of restrictive trade barriers on itself while competing in one of the most critical global export markets—the $1.1 trillion market for international travel."
Sure, the U.S. Travel Association is a trade group. Take its details of predictions about gains from tourism with a grain of salt. But the overall storyline is correct: The U.S. is missing an opportunity for a major growth industry as a destination for international tourism, where the major hurdle is the inability of the federal government to set up a timely and convenient process for tourist visas.
