Small Business Profile
By Edward T. Doukas Jr., Research Analyst, DOL

Small business establishments play a large role in Connecticut's economy. These establishments help fuel the State's economic engine and are vital to the State's economic health. This article will highlight the number of small business establishments, the number of workers these establishments employ, and wages earned by workers employed in small establishments statewide, and by industry and labor market area (LMA).

For the purpose of this article, establishments with fewer than 50 workers in one location are considered small establishments. An establishment is an economic unit that produces goods or provides services, usually at a single physical location, and is engaged in one or predominantly one activity. An establishment may be only a part of a firm, which is a business entity that consists of one or several establishments.

The Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW) program produces these data. The QCEW program provides the largest available universe of employment and wage data by industry and area representing approximately 98 percent of all Connecticut employment. Employment that is not covered by the QCEW program includes some workers in agriculture, domestic services, railroad employees, student workers, elected officials, employees of religious organizations, and self-employed and unpaid family workers.

Statewide

In March 2004, privately owned small establishments accounted for 95.6 percent of the Constitution State's total number of private establishments, and were the source of 44.3 percent of Connecticut's total private employment. During the first quarter of 2004 (1Q04), workers in privately owned small establishments earned 33.6 percent of total wages paid by private establishments.

In the period between March 1996 and March 2004, small establishments accounted for 96.7 percent of the growth in the number of total private establishments. During the same period, establishments with fewer than 50 employees showed an employment growth of 8.9 percent or 49,378, while establishments with 50 or more employees showed an employment decline of 1.3 percent, down 10,235.

Although small establishments strengthen Connecticut's economy, workers in these establishments generally earn less, on average, than their cohorts in larger worksites. During 1Q04, the average weekly wage for workers in establishments with less than 50 employees was $813 compared to the $1,278 earned by workers in establishments with 50 or more employees, a difference of $465 or 36.4 percent. Between the first quarter of 1996 (1Q96) and 1Q04, the wage earned by workers in small establishments grew 36.6 percent while the pay for workers in establishments with 50 or more employees increased 63.4 percent.

Small establishments are a volatile part of Connecticut's economy. During times of economic growth, an increased number of small establishments open and existing establishments hire more workers. However, during times of economic downturns, small establishments are often the first to be forced to downsize or go out of business.

Industries

During 1Q04, five industry sectors had a greater percentage of small establishments than the State average of 95.6 percent (table below). Small establishments accounted for 98.8 percent of establishments in construction and real estate and rental and leasing, 98.0 percent in professional and technical services, 97.7 percent in wholesale trade, and 99.3 percent in the other services grouping of industries.

In contrast, the utilities sector had the smallest percentage of small business establishments, 72.3 percent. The sector of industries involved in the management of companies and enterprises had the next lowest percentage, 81.1 percent, followed by manufacturing and educational services, 85.7 percent and 89.8 percent, respectively.

Reviewing employment figures in the table below highlights that small business employment is not uniformly distributed among industry sectors. Nine sectors reported greater employment shares in small establishments than the State average of 44.3 percent. The other services grouping had 82.3 percent of its employment in small establishments. This was followed by construction with 78.4 percent of sector employment in small establishments, and real estate and rental and leasing, 77.5 percent. Other industry sectors with percentages higher than the State average included: accommodation and food services, 67.7 percent; professional and technical services, 61.5 percent; wholesale trade, 61.3 percent; arts, entertainment and recreation, 56.5 percent; retail trade, 52.0 percent; and agriculture, forestry, fishing and hunting, 47.1 percent.

Conversely, three industry sectors had less than twenty percent of their employment in small establishments. Utilities had the lowest percentage, 13.1 percent. The others were educational services, 18.2 percent, and management of companies and enterprises, 18.5 percent. These are the industries most significantly comprised of large organizations.

During 1Q04, small establishment workers in six industry sectors recorded higher weekly earnings than their counterparts in establishments with 50 or more employees. As the table below shows, with a difference of 35.4 percent, the administrative and waste management sector had the largest percentage gap in average weekly wage in favor of smaller establishments, $694 compared to $513. Following were agriculture, forestry, fishing and hunting sector workers who earned 24.8 percent more, $482 versus $386; and workers in management of companies and enterprises, higher by 20.2 percent, $3,301 versus $2,745. Other sectors where smaller establishment workers earned more than large establishment employees were: transportation and warehousing, 13.1 percent more, $758 versus $670; other services, 2.1 percent more, $492 versus $482; and arts, entertainment and recreation, an average weekly wage 1.6 percent more, $447 versus $440.

Generally, small establishment wages lag behind those of larger establishments. Educational services had the largest wage difference in favor of larger establishments. Workers in small establishments in the educational services sector earned 46.3 percent less than workers in establishments with 50 or more employees, $476 compared to $886. This was followed by real estate and rental and leasing, $768 compared to $1,311, 41.5 percent less, and finance and insurance, $2,173 compared to $3,694, 41.2 percent less. Workers in small manufacturing establishments earned 37.7 percent less on average than manufacturing workers in larger establishments, $805 compared to $1,292.

Labor Market Areas

In 1Q04, all nine Connecticut LMAs had about the same percentage of private businesses classified as small establishments. The percentage of private businesses classified as small establishments ranged from a high of 97.0 percent in the Torrington LMA to a low of 93.5 percent in the Enfield LMA. Between 1Q96 and 1Q04, the Danbury LMA had the largest percentage gain in small establishments, 7.4 percent. The New Haven LMA was the only area to show a decline in small establishments during the period, declining 0.2 percent. Establishments with 50 or more employees increased 14.0 percent in the New Haven LMA during that time span.

Employment figures show that the rural and thinly populated Torrington LMA was the only area in Connecticut to have over half of its employment working in small establishments, 58.3 percent. The Enfield LMA had the lowest percentage of employment in small establishments, 38.1 percent.

Between 1Q96 and 1Q04, the Danbury LMA had the largest percentage increase in small establishment employment, expanding 13.8 percent. The Torrington LMA showed the next highest percentage gain in small establishment employment, 12.7 percent. The remaining seven LMAs had small establishment employment gains of between 6.0 and 9.0 percent. The Norwich-New London LMA had the largest employment decline in establishments with 50 or more employees in the 1Q96 to 1Q04 time frame, down almost 14,000 or 22.9 percent. The southeastern section of Connecticut has a high level of defense related employment. The decline in defense spending undoubtedly played a role in the reduction of employment in larger establishments in the Norwich-New London area.

As with establishment and employment figures, Torrington led all areas and was the only LMA to have over half of its total quarterly wages earned in small establishments, 53.3 percent. The lowest percentage was found in the Hartford LMA, 28.5 percent. In every LMA during 1Q04, employees working in small establishments earned a lower average weekly wage than employees in larger establishments. The smallest percentage difference was found in the Waterbury LMA, where small establishment workers earned 17.9 percent less, $615 versus $750. The largest percentage discrepancy was in the Norwich-New London LMA, where workers in small establishments brought home 46.4 percent less than larger worksite employees, $564 compared to $1,053.

To be sure, small establishments are a major component in Connecticut's economy. These firms introduce new ideas and processes, fill niche markets, and provide goods and services to locations that larger establishments can't reach. The Connecticut Department of Labor's Office of Research produces a great deal of labor market information, such as industry employment and wage data, industry staffing patterns, occupational wage rates, labor supply, sources of training, and economic forecasts. These resources can assist small establishments in making location and hiring decisions. To learn more about what is available, visit the Department of Labor's website for labor market information at http://www.ctdol.state.ct.us/lmi.

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