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Employment Gains for Large Organizations: 5 Reasons Why Smaller Companies are Growing Faster

Author

Ahu Yildirmaz

More by Ahu
Author

Ahu Yildirmaz

More by Ahu

For much of the second half of 2015, large organizations did not experience the same employment gains as small or midsized organizations. Between August and December, the ADP National Employment Report stated that December was the only month in which employment for large organizations came in on top, with 97,000 positions added in total. Meanwhile, small businesses added 95,000 positions and midsized organizations gained 65,000 roles.

Although the recent trend toward large business employment gains is positive, slow growth at organizations with 500 or more employees can be indicative of larger economic patterns. Large companies continue to be impacted negatively by trends in the national economy, whereas smaller organizations are less susceptible and even might stand to benefit from those fluctuations. Global demand, consumer confidence and the relative performance of different sectors can all influence the rate at which large organizations are able to create new positions.

Here are the top five factors that can negatively impact large organization job creation:

  1. Oil Prices
    Recent trading prices for crude oil have continued to plummet. The phenomenon is in part because of what the Wall Street Journal calls a "persistent global glut" of crude oil. In the first weeks of 2015, oil prices reached the lowest level since 2003, which has caused the oil and gas industry to slow the initiation of new drilling projects and related hiring.
    The drop in oil prices has had a negative effect on some aspects of the U.S. economy, particularly large employers in Texas. According to the VCPost, Texas has had a 6.5 percent reduction in jobs this year.
    However, this drop is not entirely negative. The U.S. gross domestic product (GDP) increased in 2015, due partially to increased discretionary income among consumers, driven by fuel savings. While the U.S. economy's job growth trend is overwhelmingly positive, lags in the oil sector have a more pronounced impression on large employers than the economy as a whole, because the U.S. GDP is not entirely dependent on oil.
  2. Exchange Rate
    The dollar's strong performance in the past year has worried analysts, who are familiar with the significant jolt the exchange rate can have on large organization employment gains. Although the manufacturing sector accounts for less than 9 percent of industry employment, economist Jared Berstein writes the exchange rate can have particularly strong ramifications on job creation in the manufacturing sector because of the decreased global demand for exports. In general, larger companies are more likely to have overseas branches or participate in international trade, which can be disturbed by dramatic changes in exchange rates.
  3. Global Demand
    The dollar's relative position to global currencies can greatly alter global demand for exports. According to the International Trade Administration, small and midsized organizations account for less than one third of "the known value of U.S. goods' export." As a result, smaller organizations are less dependent on the purchase power of other countries for company revenue. That can offer immunity in times, like the present, when foreign currencies are weak against the U.S. dollar. Large companies who export, however, may suffer as foreign customers defect to the lower prices offered by competitors, and global demand can decrease because of the higher costs of U.S.-made products.
  4. Consumer Confidence
    Consumer perceptions of economic growth and health — which are based on factors such as job growth, disposable income and fuel prices — can play a significant role in how individuals direct their discretionary income and manage large purchases. According to Investopedia, large companies are most likely to use the Consumer Confidence Index (CCI) for planning production, particularly in durable goods sectors such as automobile manufacturing. While CNBC writes that the CCI remained at 90 or higher for all of 2015, drastic fluctuations in the index between August and November 2015 could have caused large companies to slow production or hiring.
  5. Sector Health
    Relative gains and losses in each sector don't just contribute to the bottom line of employment gains or losses by organization size. There's a fair degree of interactivity between sectors, and slowing in one industry can cause delayed gains in another. If construction slows considerably, for example, there will be a decreased consumer demand for products and services from the construction-goods-producing sector, and for mortgages and insurance, which are generated by financial and professional services sectors.

In the latter half of 2015, the only industries with slow or negative growth were energy and manufacturing, which are often counted among large organizations. A recent trend toward slowed employment gains at large organizations could be attributed to the fact that many small companies are less affected by sectors that are suffering under current economic conditions.

How to Protect Your Organization

For large organizations who want to protect their employees against recent trends in this market, the key may be in understanding the major factors at play in the domestic and global economies. Although large organizations cannot control oil trading prices or the consumer confidence index, they can predict changes based on drops in supporting industries or global demand for exports and respond accordingly. For organizations with varying degrees of susceptibility during periods of economic recession, human resources must shift its focus to become a champion of employee engagement and an agent of change within the organization.

According to a Deloitte report, the role of HR has shifted from a largely compliance-driven function to one that's "agile, business-integrated, data-driven, and deeply skilled" at retention and recruitment efforts. Deloitte also reports that 99 percent of the business and HR leaders surveyed believe that HR should have at least some role in developing "innovative solutions and programs."

Therefore, in order to keep up with the demands of an increasingly global workforce, particularly in times of change and downturn, CHROs at large organizations should endeavor to be educated on economic trends and their potential impact and be prepared to formulate a response.