Why This Counts: 10 Million U.S. Establishments for the First Time

In the third quarter of 2018, the number of establishments in the U.S. economy reached 10 million. This milestone is based on data from the Quarterly Census of Employment and Wages (QCEW), which uses administrative records to identify the number of establishments in our economy.

What is the QCEW?

The QCEW compiles quarterly reports of the Unemployment Insurance systems in each state, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Every business with an employee, other than the owner, must register with the state where it has a business location. We call these locations establishments.

 Behind the number

Behind the 10 million establishments are some interesting facts about our labor market.

First, the U.S. labor market is dynamic

Roughly 200,000 establishments are new each quarter. That adds up to almost 800,000 new establishments each year. If we consider that we first hit the 9 million mark in third quarter 2007, you may wonder why we didn’t reach 10 million sooner.

Some establishments continue for long periods, while others close. In 2018, more than half of all private sector establishments were 10 years or older. And while the number of establishments grows in most years, during a recession fewer establishments open and more close. Openings and closings that mostly offset one another result in a pretty stable rate of change in the total number of establishments over time.

Editor’s note: Data for this chart are available in the table below.

Second, most establishments are small

If we define small establishments as having fewer than 500 employees, 99.8 percent of all establishments in the U.S. economy are small. These employ 82.6 percent of workers and pay 73.5 percent of all wages, including bonuses.

Less than one-tenth of 1 percent of establishments have 1,000 employees or more, yet these establishment have an outsized impact. In first quarter 2018 they accounted for 11.0 percent of employment and 17.8 percent of total wages, far higher than their representation in our economy.

Editor’s note: Data for this chart are available in the table below.

Slicing the data a different way, we find that 62.5 percent of all establishments in first quarter 2018 had fewer than 5 employees. In fact, the five industries with the most establishments are all dominated by small establishments.

Services for the elderly and disabled is the industry with both the highest number of establishments and the highest number of small establishments. In first quarter 2018, it had 742,364 private establishments, and 97.1 percent of them had fewer than 5 employees. The industry office of physicians, except mental health ranks fifth in the U.S. economy in terms of the number of establishments, and 52.5 percent of them had fewer than 5 employees.

An interesting story about physicians’ offices

The real value of the QCEW data is in its fine level of detail. Drilling down, we find that in first quarter 2018 Los Angeles County had 10,360 establishments in offices of physicians, except mental health, ranking first in the U.S. economy.

However, the highest concentration of physicians’ offices is not in Los Angeles, but in Johnson County, Georgia. We use location quotients to measure the concentration of establishments in a geographic area. A location quotient greater than 1 means the industry has a greater concentration of establishments within the county than in the nation. With a location quotient of 5.0, Johnson County has five times the concentration of physicians’ offices than the nation.

So, who uses the data?

The detail available in QCEW data is important to a range of users. In the private sector, commercial real estate brokers may use the data when deciding the best location for a new business. Small business owners may compare average weekly wages. Large corporations may use local data to develop geographic profiles and market studies.

In the public sector, local and regional economic development agencies use the data for planning and program development. Understanding the type and size of establishments can help them recruit and retain businesses and support workforce development investment. Disaster relief agencies use information on the size of establishments or the concentration in an area to determine risk and track recovery efforts. State governments and academic institutions use the data to study the health of regional economies.

Want to know more?

For this blog, we use private ownership data from first quarter 2018 to explore QCEW establishment size data. You can explore establishment size data using the QCEW Data Viewer.

For even more information, visit our QCEW page.