The Effect of the Size Distribution of Establishments on Employment and Earnings

This investigation examines employment opportunities for low-skill men and women focusing on the role of changes in the number and size distribution of employers in local labor markets. The study uses data from the Census Bureau’s 1989-97 County Business Patterns files to characterize the number and size distribution of establishments by county over time. It links these measures to person-level data from the 1990-98 Annual Demographic Supplements (March files) of the Current Population Survey on employment, earnings and other personal attributes. The study estimates probit models of the relationship between local business conditions and individual employment outcomes and regression models of the relationship between business conditions and individual hourly and weekly earnings. The empirical results show that changes in the size distribution of establishments have both general and skill-specific effects on employment and earnings. The estimates indicate that increases in the number of establishments with 100-499 employees lead to higher levels of employment for less-skilled men and women. Increases in the number of establishments with 10-99 employees are positively associated with earnings for most workers, but the effects appear to be largest for younger workers. Increases in the number of establishments with fewer than 10 employees are actually negatively associated with employment for younger, more-educated men and women and negatively associated with earnings for less-educated women.