SAN FRANCISCO — Reversing a long-term trend, small businesses are taking a growing share of U.S. employment, with possibly negative consequences for health care coverage of millions of workers.
New government data show that small firms employed 50.9% of private-sector workers in 2004, up from 50.7% in 2003. It was the third-consecutive year of small firms gaining, and followed nearly uninterrupted annual increases by big employers since 1988, the Small Business Administration data show.
As more Americans work for small firms, however, they are less likely to get medical coverage and other benefits such as retirement plans, because small firms are less likely to offer those benefits.
For example, 60% of companies with three to 199 workers offered health benefits this year vs. 98% of those with 200 or more workers, the Kaiser Family Foundation said last month.
Driving the employment trend:
• Shifting cycles. Big companies — defined by the SBA as those with 500 or more employees — are more likely than small businesses to shed workers during recessions and slow-growth economies, says Mark Zandi, chief economist at Moody's Economy.com.
"Layoff announcements are large and numerous," Zandi says, citing the period after 2001, when a short recession spurred many corporations to slash payrolls.
• Industry mix. Big corporations are more likely to be in manufacturing, a sector ripe for replacing workers with automation through investments in technology.
Small companies are often in service industries such as consulting and health care, fields that require workers rather than machinery, says Brian Headd, SBA's head of research.
In Omaha, Medical Solutions nearly doubled employment this year, to 250 workers, as more hospitals hired its registered nurses and other health care professionals. Started in 1997, the company now has contracts with 350 hospitals in 46 states, President Scott Anderson says.
• Outsourcing. As big companies downsize, they hand work to smaller outfits such as Total Asset Services in Tulsa. It installs voice and data cables, plus other equipment for big companies such as Capital One that are opening call centers in the Midwest, owner Sharon Marrs says.
The outlook for further shifts in employment is mixed. Zandi says big corporations may have taken the lead since 2004 as the economy started growing again after the recession.
Still, planned job cuts, especially in the automotive industry, soared 54%, to 100,315, last month from August, outplacement firm Challenger Gray & Christmas said last week.
Also, CEOs of Fortune 500 companies have grown more pessimistic about hiring, according to the Business Roundtable's most recent quarterly survey.
In that trade group survey, published last month, 32% of CEOs said they expected U.S. employment would be higher in the next six months, down from 41% in the previous survey.
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