What the Growth of Big Business Means for Jobs
- By
- January 11, 2024
- CBR - Economics
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As giant US companies make up a larger and larger share of the economy, more and more Americans are buying goods and services from them. The trend is true both nationally and locally, finds research by MIT’s David Autor, Chicago Booth’s Christina Patterson, and London School of Economics’ John Van Reenen: in any given US county, the average consumer is increasingly spending money at the same few businesses.
The picture is different for employment, however, the study notes. While jobs across the country have concentrated in these large companies, the number of workers they typically employ in a single place has fallen. On the ground, this could mean job seekers face additional competition, although the researchers add that the situation is nuanced.
“There is broad consensus that national industrial concentration rates have risen substantially in the US since 1980,” write Autor, Patterson, and Van Reenen. The trend goes back a century, according to Brown’s Spencer Yongwook Kwon, Chicago Booth’s Yueran Ma, and Leibniz Institute for Financial Research’s Kaspar Zimmermann. They calculate that the share of the US economy dominated by the top 1 percent of companies on the basis of assets has increased to 90 percent, up from 70 percent in the 1930s. Meanwhile, the asset share of the top 0.1 percent of companies rose to 88 percent, up from 47 percent.
A shift away from factories
Between 1992 and 2017, US economic activity shifted substantially from manufacturing to services, where employment is less concentrated. This structural change, which reallocated jobs more than sales, is key to understanding the decline in employment concentration at the local level.
To see the effects of this on sales and employment, Autor, Patterson, and Van Reenen analyzed Economic Census data from 1992 to 2017, the most recent available to them, tracking information from companies in six broad sectors, including finance, manufacturing, retail, services, utilities and transportation, and wholesale trade. They excluded sales from businesses based outside the United States, included sales of imported goods by US-based companies, and assumed the geographic distribution of online sales was similar to that of other sales. The researchers then calculated local sales and employment concentration by US county.
Their findings suggest that the reallocation of jobs away from the highly concentrated manufacturing sector to the less concentrated services sector has led to an overall decline in employment concentration. Big factories have been operating with fewer people, and at the same time, there’s been an increase in service jobs such as at independent hair salons.
This structural transformation has involved economic activity shifting from lower productivity, labor-intensive work to higher productivity, skills-based work. Between 1992 and 2017, the US manufacturing sector lost 7–8 percent of total economy-wide sales and 10 percent of total employment to the services sector. Without this shift, local employment concentration would have risen by 9 percent over the same period instead of falling by 5 percent, the study finds.
On the sales side, the researchers suggest that rising national concentration could reflect (and be contributing to) weakening competition for different products. Chains can more cheaply sell a greater number and variety of goods than local stores, so their growth means fewer suppliers and shopping options.
The researchers stop short of proposing specific policy interventions for consumers or workers. Understanding the labor market is crucial for policy makers seeking to address wage inequality, unemployment, and other economic issues, but the researchers say it’s currently unclear if local workers will be hurt by this concentration. There could be unrecognized benefits, perhaps for younger workers who can more easily learn new skills and switch industries. But there are also clear costs, particularly for people for whom it’s harder to change jobs. “One prominent example would be workers employed in—or displaced from—manufacturing jobs,” write Autor, Patterson, and Van Reenen. “Evidence indicates that such workers fare poorly.”
- David Autor, Christina Patterson, and John Van Reenen, “Local and National Concentration Trends in Jobs and Sales: The Role of Structural Transformation,” Working paper, April 2023.
- Spencer Yongwook Kwon, Yueran Ma, and Kaspar Zimmermann, “100 Years of Rising Corporate Concentration,” Working paper, May 2022.
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