Employees galore.

Photographer: Patrick T. Fallon/Bloomberg

Big Companies Still Employ Lots of People

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Smart people have been predicting the demise of the big corporation for quite a while now.

Sometimes, as in Michael C. Jensen's famous 1989 Harvard Business Review article on the "Eclipse of the Public Corporation," the argument has focused on the financial or legal form that a business takes. Sometimes, as in John Byrne's also-famous 1993 Businessweek cover story on "The Virtual Corporation," the idea has been that technology was enabling the creation of smaller, more flexible business organizations that could run circles around giant corporations.

It's certainly true that the traditional corporate form, and in particular the publicly traded corporation, has been on the decline. Jensen predicted that public firms would be swallowed up (and slimmed down) by leveraged buyouts -- what is now known as private equity. Indeed, the number of publicly traded corporations in the U.S. has fallen from 7,322 in 1996 (and 5,767 when Jensen's article was published in 1989) to 3,659 at the end of 2015 -- and while the growth of private equity isn't responsible for all of that decline, it's surely responsible for part of it. Also, U.S. tax-law changes in 1986 encouraged the creation of "pass-through businesses" that don't pay corporate taxes; there are now about a million fewer traditional "C corporations" than there were in 1986, while the numbers of pass-through "S corporations" and partnerships have steadily grown.

As for the rise of the virtual corporation, today one can find many examples of the "temporary network of independent companies" that Byrne predicted in 1993 would become the new way of getting things done. In his soon-to-be-published book, "The Vanishing American Corporation," Jerry Davis of the University of Michigan's Ross School of Business describes a few of them: Nike contracts out its manufacturing, as do Apple and many pharmaceutical companies. Vizio became the biggest selling LCD TV brand in the U.S. with only a few hundred employees. New companies such as Uber and Airbnb have built big global businesses with small employee numbers by assembling huge networks of independent contractors.

Yet ... there are still lots of really big companies, with lots of employees. Here's how many people work at the companies in the Standard & Poor's 500 Index:

I use number of employees as my metric in part because I just figured out how to get the data on my Bloomberg terminal, and in part because headcount offers a gauge of a corporation's impact that's different from and in some ways more informative than the more commonly used metrics of revenue, earnings and market cap.

As the chart shows, employment at the largest U.S.-based publicly traded corporations  has risen substantially since the 1990s. You might ask, Compared with what? It's a good question: In a country with a growing population and a growing economy, big corporations could be adding employees yet employing a declining share of the workforce. In fact, S&P 500 employment has actually risen as a share of U.S. nonfarm payroll employment, from 15 percent in 1990 to 17.3 percent in 2015. But the rise could be due mainly to the increasingly global footprint of S&P 500 companies. Many of the employees they've added may be outside the U.S.

A better comparison may be with employment at the companies in the Russell 3000 index, which includes the S&P 500 plus another 2,500-odd smaller-cap stocks. This at least gives a sense of how the biggest publicly traded corporations are faring versus smaller ones (the Russell 3000 data is only available back to 1995):

There's no clear long-term trend discernible here -- just a big, temporary rise for S&P 500 companies' employment share during the last recession. Which makes sense, in that smaller corporations had fewer resources to draw on during the downturn and thus were presumably quicker to lay off workers or sell out to larger companies.

Another comparison can be obtained from the Census Bureau's Statistics of U.S. Businesses, which divides businesses by how many employees they have.

Here the trend is clear. Businesses with 500 or more employees have gained ground at the expense of those with fewer than 100 employees (the share held by companies with 100 to 499 employees remained just about constant). This accords with recent economic research on business dynamism, which has found, among other things, that firms that have been around for more than five years account for a growing share of business activity and employment.

So far there's no sign -- in the aggregate employment numbers, at least -- that large corporations are dwindling away. In fact, they seem to have been consolidating their positions.

  1. There's also the line of reasoning espoused by the Brooklyn-based band Color Bars in their not-yet-famous "End of the Corporate Age," which is that corporations will get what's coming to them when Bernie Sanders is elected president. I'm not going to get into that today, though.

  2. Yes, the name on the book cover is Gerald S. Davis. But I quoted him Tuesday as Jerry Davis because that was the byline on the paper I was quoting from. So I'm sticking with Jerry.

  3. The S&P 500 isn't exactly the 500 largest U.S. publicly traded corporations -- the criteria for inclusion are complicated. But it's a reasonable proxy.

  4. According to the Bloomberg terminal and Vanguard, the Russell 3000 index currently contains 2,979 stocks.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net