Corporations and Employment

How important are corporations in the US economy? The first thing we should look at is employment. The following data are gathered from the 2008 Census:

Total paid employees in US: 120,903,551
Total annual payroll: $5,130,509 million
Average annual pay per employee: $42,401

Total number of firms in US: 27,281,452
Non-employer firms: 21,351,320 (self-employed owners with no employees)

Firms with 1 to 499 employees: 5,911,663
Paid employees: 59,693,991
Annual payroll: $2,229,169 million
Average annual pay per employee: $37,153

Firms with 500 employees or more: 18,469
Paid employees: 61,209,560
Annual payroll: $2,901,340 million
Average annual pay per employee: $47,408

Firms with 10,000 employees or more: 981
Paid employees: 33,025,346
Annual payroll: $1,579,560 million
Average annual pay per employee: $47,865

From the above figures, the following conclusions are derived:

The US is a nation of self-employed citizens who own more than 21 million firms against a total of 27 millions registered. These are family operated businesses that hire no employees. They have no payrolls. Their business earnings are reflected in their household incomes shown in the personal tax forms but not in the Census.

There exists a large sector of small to medium companies employing 1 to 499 workers. They employ close to 60 million people, about one half of total US employment. The annual pay at these smaller companies is below the national average of $42,401.

Companies with 500 workers or more account for the other half of total US employment. Within this group, big corporations (over 10.000 workers) employ a total of 33 million people, that is, slightly over one-quarter of total US employment. Employees working in big corporations receive higher pay than the national average of $42,401.

Although giant corporations assume a dominant position in many areas, they employ only about one-quarter of all US workers. When combining with medium-size corporations, their total employment does not even come close to one half of all US workers.

Therefore, as far as employment is concerned, small and medium enterprises plus family business as a group is still the driving force behind US employment, not big corporations. It follows that in order to boost US employment, something must be done to promote small to medium business. If tax cuts are required for stimulation purpose, the priority should be given to small and medium enterprises and their owners.

Then why all the politicians in the Republican Party are saying that we must lower corporate taxes to create jobs? There is no logic in this proposal. The reason is that big corporations are voting with their money to get the politicians elected to public office. In return, the politicians are obliged to give a favor by lowering corporate taxes.

How can you argue for lower taxes for corporations and the rich while the rest of the people are struggling in bad economic times? That’s easy. Just say that cutting corporate taxes will create jobs. Also trumpet that in order to be fair, rich and poor should get the same tax cuts. Most people will be brainwashed by this kind of simplistic rhetoric. Cutting taxes always benefits the rich more because they have more taxes to pay. The idea of creating jobs always seduces the common folks because that’s what they hope for.

How can lowering corporate taxes bring more jobs? First of all, corporate employment does not even come close to one half of total US employment, as I have shown earlier. So the effect will be limited. Secondly, corporations will not hire unless they see that demands are rising and their inventories are depleting.

How can you boost demands? Demands will rise as the economy grows or recovers from a recession. However, the government can boost demands quickly by giving tax cuts to the middle class instead of corporations or the rich. Why? The middle class spends the tax cut money right away to purchase what they need. The rich will not spend the tax cut money quickly because they can buy whatever they want anytime. So job creation has nothing to do with lowering taxes for corporations and the rich. It’s just a smokescreen employed by politicians to hide the concessions given to the money donors.

In conclusion, US corporations are important because of the money they employ in politics. Taken as a whole, giant corporations only account for about one-quarter of total US employment. Thus, they are not as important as many people think. As they continue to outsource employment to emerging countries, US corporations are employing fewer and fewer American workers while making more and more profits overseas. So what is the point of giving them tax breaks?

(July 2011)

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