In a Reversal, Small Firms Losing Talent War

Small firms may have a tougher time of attracting job-seeking managers and executives that are opting in favor of larger employers that they perceive to be a safe harbor in a weakened economy.

This marks a reversal from past downturns, which may make it more difficult for small businesses to get back on track when the economy begins to recover, according to a study by Challenger, Gray & Christmas Inc, an international outplacement firm.

The study found that only 54% of job seeking managers and executives went to smaller firms in the second quarter of 2001, down 12% from 62% in the pre-slowdown second quarter of 2000. The second quarter figure was the lowest since the 53% recorded in the third quarter of 1990, the first year Challenger began tracking this data.

“Small businesses have long been the backbone for the American economy,” John A. Challenger, CEO of Challenger, said in a statement. “With fewer skilled managers and executives going to smaller firms and even fewer starting their own firms, the impact could ripple through the entire economy, slowing its recovery.

The second quarter contrasts to previous periods of economic weakness when a much higher percentage of jobless managers and executives went to small businesses. In 1992, with the economy in or near recession, 71% of discharged managers and executives found refuge at small firms.

“At the time of the last recession, small businesses, while not entirely shielded from the economy, offered slightly more job security than large companies which were basically slashing thick layers of middle management in an effort to become more streamlined and efficient,” Challenger said. “Today, many small firms are just as active as large corporations when it comes to importing and exporting, so when the foreign markets suffer, as they are now, small businesses are as adversely affected as their larger counterparts.”

Further evidence that managers and executives are favoring large over small firms is the fact that fewer are starting their own businesses, the study found.

During the 1991-1992 recession, an average of 15% of jobless managers and executives started their own firms. Over the last four quarters, since the economy began to falter, the average percentage of managers and executives starting businesses has been a scant 6%.

The report is based a quarterly survey of 3,000 discharged managers and executives.