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The following articles appeared in Left Business Observer #66, October 1994. They were written by Doug Henwood, editor and publisher. They retain their copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.
Two cliches of American economic life are that small business is the engine of job growth and that corporate downsizing is an indispensable tonic for productivity. Two studies published this past spring by the U.S. Census Bureau's Center for Economic Studies (CES) show that the dispensers of these nostrums should check their facts.
The small business myth is probably the most durable and pervasive of all. It holds appeal across the political spectrum, from corporate lobbyists trying to sell tax breaks to postmodern New Agers trying to sell their vision of decentralization and local self-reliance. We are constantly told that universal health care, or a higher minimum wage, or tighter environmental regulations will drive the small business job machine off the rails. But whatever the virtues of intimate scale, like friendliness, informality, the possibility of cooperative or democratic governance, from a purely economic point of view, small isn't beautiful. Small firms pay less than large ones, are less likely to offer health, pension, or child care benefits, and are often more dangerous to workers. With few exceptions, they're not all that innovative technologically. And now it emerges that in manufacturing at least they are not the job machines they are reflexively praised for being.
Aggregate employment data like national and even local statistics on job growth and loss provide only a crude picture of the labor market. Behind the smooth curves of business cycle upswings and downswings or the waxing and waning of geographic regions lie a tremendous rush of job creation and destruction. One of the first attempts to examine that fine picture in detail is Gross Job Flows in U.S. Manufacturing, a book-length study from the CES by Steven Davis, John Haltiwanger, and Scott Schuh. They draw on the Census Bureau's vast store of information on some 400,000 U.S. manufacturing plants (the Census Bureau counts businesses, governments, and houses as well as people). Their repudiation of the small business job machine myth is a by-product of their investigation of the birth and death of manufacturing jobs between 1972 and 1988.
Probably the most striking feature of the study is the incredible volatility of the labor market. In a typical year of that 16-year span, about one in ten manufacturing jobs disappeared, and as many were created -- even though the total number of manufacturing jobs was virtually unchanged over the period at a bit over 19 million. Most of these changes are persistent and concentrated, that is, once a job in a particular plant disappears, it stays disappeared, and both growth and decline tend to be con