Journal of Economic Behavior Organization Vol. 44 2001 363–382
Will most of us be working for giant enterprises by 2028?
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Frederic L. Pryor
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Department of Economics, Swarthmore College, Swarthmore, PA 19081, USA Received 5 April 1999; received in revised form 30 May 2000; accepted 2 June 2000
Abstract
Various economic theories yield quite opposite predictions about the changing size of enterprises and establishments and the purpose of this essay is to present some stylized facts to begin to resolve
some of these theoretical confusions. The estimates for this purpose cover a period of almost four decades. They show that average establishment size has decreased since the late 1960s, that the
number of establishments per enterprise has leveled off since the early 1980s, and that the average size of enterprises reveals an undulating pattern with a sharp upturn at the end of the century due to
the impact of the merger wave. Considerable attention is paid to the causal factors underlying these changes, particular in reference to the conflicting theoretical evidence. © 2001 Elsevier Science
B.V. All rights reserved.
JEL classification: L10; L22; D40 Keywords: Enterprise size; Enterprise structure; Establishment size; Information technology
1. Introduction
From 1985 through 1999, the dollar value of world mergers increased at an average annual rate of 21 percent; for mergers involving just US firms, the annual rate was 18 percent Pryor,
2000a. Total mergers and acquisitions in the world reached 2.3 trillion dollars in 1999. The capstone of this merger tsunami occurred in the first 5 weeks of 2000 with the announcement
of five mega-mergers with a total value of more than 0.5 trillion dollars.
Merger data in isolation tell us little about changes in the structure of production. Obvi- ously, if firms are simultaneously buying and selling parts of enterprises, the size distribution
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The author is an Emeritus Professor of Economics at Swarthmore College. He is the author of 10 books, mostly in the field of economic systems, and is currently working on a book-length study entitled “The Future of US
Capitalism.”
∗
Tel.: +1-610-328-8130; fax: +1-610-328-7352. E-mail address: fpryor1swarthmore.edu F.L. Pryor.
0167-268101 – see front matter © 2001 Elsevier Science B.V. All rights reserved. PII: S 0 1 6 7 - 2 6 8 1 0 0 0 0 1 4 7 - 5
364 F.L. Pryor J. of Economic Behavior Org. 44 2001 363–382
and average size of firms could remain roughly the same. Ijiri and Simon 1971 present a less intuitive model where, under common dynamic conditions, the merger process does not
necessarily lead to any significant changes in either the distribution or average size of enter- prises. They argue this might explain the roughly stable structure in the size distribution of
manufacturing from 1930 to 1960. On the other hand, under other dynamic conditions it is also possible to theorize that a rising volume of mergers will lead to a radical shift in the size
distribution of firms so that most of us might be working for giant enterprises in the future — the trillion-dollar enterprise, as one recent book title has announced Friedheim, 1998.
Leaving aside the question of whether such mergers lead to a rising level of market concentration, a matter discussed elsewhere Pryor, 2000b, the impact of these mergers on
firm size raise a number of other concerns. The distribution of enterprise size may influence technical change. For instance, research over the last few decades e.g., Scherer, 1965
or Acs and Audretsch, 1991a,b suggests that both patented inventions and innovations generally increase less than proportionately to firm size. Or work satisfaction, measured
both by surveys and also by behavioral measures such as lower absenteeism, appears greater in both small establishments and firms than in larger units Lang and Johnson,
1994; Dunn, 1982; Shepard and Hougland, 1982; and Scherer, 1976. Furthermore, since wage inequalities are less in small than in large establishments and enterprises Davis and
Haltiwanger, 1995; Schmidt and Zimmermann, 1991; and Dunn, 1982, the size distribution of enterprises has an impact on the distribution of income. Moreover, giant corporations
may be “too large to fail,” which has implications for governmental policy as well. Finally, the growth of a small number of firms employing an increasingly larger share of the labor
force may have some seriously adverse political implications as well, a conjecture difficult to test and disputed by some.
1
A major problem in discussion of the changing size distribution of enterprises is that the basic data are not very satisfactory and, as a result, we lack the stylized facts necessary for
an informed discussion. The purpose of this essay is to disentangle the data and to explore empirically the trends in the average size and size distribution of enterprises, as measured
by employed labor force, for a period of almost four decades. From this exercises we can also gain some insights into the causal forces that underlie the observed changes, as well as
begin to answer the question posed in the title.
The analysis is straightforward. Section 2 looks briefly at the conflicting answers about the distribution and average size of enterprises by some leading theorists. Section 3 ex-
amines several of the critical data problems about the measurement of enterprise size over time that have hindered empirical analysis and shows how I have tried to circumvent them.
The following section presents various measures of enterprise and establishment size, par- ticularly in light of the leading theories. Section 5 explores how taking into account the
foreign operations of the largest domestic firms provides greater depth to the analysis and this analysis is supplemented by examining the size of large firms in countries outside the
US. Section 6 pulls the disparate strands of the argument together.
1
Much of the evidence is in the form of case studies of particular types of legislation e.g., Vogel’s, 1982 study of air pollution legislation and considerable disagreements arise about the meaning of the results of such studies.
Clearly, the impact of enterprise size on legislation depends to a considerable degree upon the type of laws being considered.
F.L. Pryor J. of Economic Behavior Org. 44 2001 363–382 365
2. Some current theories
