Small companies now do 92% of US hiring, here's why

More than 92% of hires in May came from US business establishments with fewer than 1,000 employees, according to federal data. The very smallest employers have grabbed an even larger share in recent years.

Businesses with up to 49 workers accounted for about 40% of hires in the early 2000s. That figure began climbing after the pandemic and briefly topped 50% in January.

"Hiring has fallen across the labor market, the decline has been less pronounced among small employers," said Cory Stahle, an economist at Indeed.

After Iren Azra Zou was laid off by Amazon last year, she focused her search on smaller companies. Within two weeks, she landed an engineering job at a tech startup.

"There are countless small and mid-sized companies doing interesting, meaningful work," she said. "I see a lot of people limit themselves because they think it's either Big Tech or something boring."

Economists point to several factors shifting hiring toward smaller employers. Aaron Terrazas, an economist at the HR platform Gusto, said one explanation is how companies staffed up during the pandemic. Large companies with greater access to financing ramped up hiring more easily, he said, while smaller businesses generally stayed lean. Some large employers now believe they overhired and have scaled back. Smaller businesses have been better positioned to keep adding workers.

That leaner staffing also makes hiring more urgent when vacancies arise, Stahle said. With fewer workers to absorb the workload when someone leaves, small businesses often need to replace them quickly.

Terrazas said AI is contributing to small-business hiring in two ways: helping existing businesses grow faster and making it easier for entrepreneurs to start new companies. "We're seeing more of those new business owners succeed in growing and expanding their staff," he said.

Yousuf Imran is among those who joined the wave of entrepreneurship. In April, he left his account executive role at Google to start a business focused on AI sales tools. He is currently running the company as a solo founder, working with a small team of engineers, marketers, and other contractors.

The biggest employers account for a small share of hires, and this is not new. Over the past two decades, establishments with 5,000 or more employees have consistently made up just 1% to 2% of hires. Part of that could be an artifact of how the data is reported. Some large employers may be counted as multiple establishments depending on their structure, Stahle said. An individual office of a large company could fall below the 5,000-employee threshold.

Hiring has not shifted toward mid-sized establishments with 1,000 to 4,999 employees, either. The main change in recent years has been the growing share of hires at businesses with 1 to 49 employees. Their share has exceeded 50% only five times since 2001, with four of those instances coming since 2020.

The biggest establishments also appear to hire less than their number of job postings might suggest. In May, they accounted for roughly 3% of job openings but less than 2% of hires, a pattern that has persisted in recent years. The opposite holds for establishments with between 50 and 999 employees. They accounted for about 39% of job openings but roughly 43% of hires in May.

If not for the healthcare sector, which is dominated by large employers and has remained a major source of hiring, the gap between small- and large-business hiring would be even wider, Terrazas said.

Landing a job at a big-name employer may be the goal for many job seekers. In today's labor market, the best chance of finding work could be at a company they have never heard of. "There might be less competition and some opportunities for you as a job seeker if you're open to learning more about some of these smaller to mid-sized companies," Stahle said.