Smaller companies pay less – especially in finance

Andrey Kamenov

Andrey Kamenov, Ph.D. Probability and Statistics

The U.S. Census Bureau’s County Business Patterns data allows us to compare employment and payroll numbers between businesses of different sizes.

Approximately half of Americans are employed in businesses with less than 100 total employees. It appears that on average, these companies pay 37 percent less.

Of course, the average number doesn’t mean much — the exact difference varies from state to state and industry to industry.

As we can see on this map, the difference between larger and smaller businesses is somewhat more significant in the West Coast states, from 48 percent in California to 65 percent in Washington.

However, several states show only a marginal difference: Nevada, Vermont and Washington, D.C. are all under 10 percent. But larger businesses still pay slightly more in these states.

To compare the numbers between different industries, we have to keep in mind that the average business size is different for each industry.  We selected size tiers in such a way so that at least 25 percent of all workers in every particular industry work in businesses of each tier.  This means, for example, that while businesses with less than 20 employees would be considered small in most industries, the threshold is as high as 50 employees for health care.

In all major industries, except again for health care, the correlation between the size of a business and the average payroll is evident. What is interesting is the fact that the difference between medium and large businesses is not very large, with the clearest case of this being in the finance industry. In 2012, large businesses paid only 4 percent more than medium-sized ones, but 63 percent more than small firms.

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About Andrey Kamenov

Andrey Kamenov

Andrey Kamenov, Ph.D. Probability and Statistics

Andrey Kamenov is a data scientist working for Advameg Inc. His background includes teaching statistics, stochastic processes and financial mathematics in Moscow State University and working for a hedge fund. His academic interests range from statistical data analysis to optimal stopping theory. Andrey also enjoys his hobbies of photography, reading and powerlifting.

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