The Size Gap: Smaller Firms Challenged to Compete

Smaller organizations may have an easier time attracting employees, but larger ones have a better chance of keeping them around, according to a new study.

Looking to work for an association? It might be easier to get a job at a smaller association, but you might feel it in the pocketbook.

A recent study from the Kauffman Foundation, based on U.S. Census data, shows that people who work at smaller organizations make significantly less than those who work at larger firms — and the gap is widening.

There is some evidence that small and young firms have a hiring advantage in recessions and early stages of expansion because the unemployed will take lower wages.

By how much? Well, in 2001, smaller companies paid 78 percent of the salaries employees might receive at a larger firm. In 2011, that level was down to 66 percent.

“Small employers, it seems, have become increasingly unable to match the wages offered by large employers,” the study says.

More details on the foundation’s “Business Dynamics Statistics Briefing: Job Creation, Worker Churning, and Wages at Young Businesses” below:

Younger firm, lower wages: Could age be a factor? That’s what the study suggests. “Partly, these patterns reflect the well-known and well-documented employer-size wage premium—that is, wages are higher at larger businesses. Young businesses are typically also small businesses, so the firm age premium is closely linked to the firm size premium.” These more mature companies also have a lower “churn” rate than larger companies do.

Where younger organizations shine: Firms younger than two years play a key role in job creation — even if they pay less than their larger peers. In fact, 40 percent of jobs at newer firms account for job creation, versus 25 percent to 33 percent at larger firms. So as a result, smaller firms have a natural advantage at getting fresher employees. “There is some evidence that small and young firms have a hiring advantage in recessions and early stages of expansion because the unemployed will take lower wages,” Dane Stangler, Kauffman’s Director of Research and Policy, explained to The Washington Post.

Where larger firms have the upper hand: The reason why churn is higher for smaller companies than larger ones? Simply put, employees working at smaller firms have a higher potential to increase their income by moving to larger firms. Likewise, when an employee’s churn level decreases, that means their employer has a better chance of keeping the worker around. “Because job change accounts for a substantial portion of earnings growth, especially for younger workers,” the study says, “this decrease in churning reflects a decrease in workers’ opportunities for earnings growth.”

What is employee turnover like at your association? Have you been able to fend off churn to keep your employees around? Let us know in the comments.


Ernie Smith

By Ernie Smith

Ernie Smith is a senior editor for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. MORE

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