Industry Market Trends

Small Business Wage Growth Outpacing the Big Guys

Feb 14, 2013

Smaller firms are starting to rival - and even outpace - large companies when it comes to employee compensation growth, which may be due to the versatility and adaptability of small business amid a turbulent economic climate.

According to a recent report tracking pay at differently-sized companies, if you want to work where salaries are going up the fastest, you should look for a job in a small company. Wages at small companies are going up faster than those at big or medium-sized firms - and while large companies still offer the best wages overall, compensation at small companies has pretty much caught up with that of medium-sized firms.

While large companies have historically experienced larger pay increases, this trend reversed itself in the second and third quarters of 2012, according to the PayScale Index, which has been tracking compensation rates and changes since 2007.

Katie Bardaro, lead economist at PayScale, said that small companies - those with fewer than 100 employees - saw wages rise 2.2 percent in the fourth quarter of 2012. Medium companies improved their wages 1 percent and large companies lagged behind with a 0.9 percent increase. In terms of year-over-year wage growth, since Q4 2011, small companies have had a 5 percent increase in wages, compared to only 2.7 percent for medium-sized firms and 3.3 percent for large companies.

The prospect of working a major, brand-name organization still has a powerful appeal on the U.S. workforce, but smaller companies are currently offering faster avenues to increase employee income.

The shift is partly due to a traditional strength of small companies: their ability to navigate rough economic waters better than larger companies. "This could have a lot to do with small companies being able to adapt more efficiently during economic shifts or a decline in the economy compared to larger organizations," Business Insider explains.

In Q1 2008, wage increase rates at large, medium, and small companies were essentially even. Since then, large companies dominated the wage increase metric until Q3 2012, which marked the first time small companies caught up with larger competitors. Despite these gains, small businesses remain vulnerable to certain risks.

"Often in the hands of entrepreneurs or families, small businesses with up to 99 employees are typically more flexible when economic shifts occur but can lack the deep pockets to survive a major decline in the economy," PayScale notes.

Small business is the primary engine for job growth in the U.S., and rising wages for the sector point to improvement in the overall labor market. In fact, the latest data indicate that compensation is on a strong upward trajectory across the board. PayScale reports that "wages for most cities, industries, job categories, and company sizes...are the highest they've been since 2006 and every measure of The PayScale Index experienced an annual growth in wages."

Broken down by industry, jobs in media and publishing have displaced IT jobs as having the largest annual wage growth in Q4 2012, posting an impressive quarterly wage increase of 2.2 percent, following quarterly wage increases of 1.4 percent in the preceding two quarters. For 2012 as a whole, media and publishing wage increased 4.6 percent, while IT compensation rose 4.4 percent.

Although tech jobs continue to be highly paid, they experienced a modest dip in the nation's largest tech hub. Forbes found that Silicon Valley tech jobs paid an annual average of $101,000 in 2012, down 2.8 percent from a high of $104,000 the previous year. The wage decline may be due to more new workers entering the tech sector straight out of college. The Baltimore/Washington, D.C., metro area came in second for tech salaries, averaging $98,000 per year. This marked a 3.8 percent increase from 2011, driven primarily by major defense contractors, including Lockheed Martin and Northrup Grumman.

Construction jobs are doing well, too, as new home construction in the U.S. continues to accelerate. According to PayScale, wage growth in the sector is at its highest level in more than three years. Construction compensation in Q4 2012 rose 4.2 percent, finally surpassing wage growth from the previous peak in Q4 2008.