Many observers of the manufacturing economy ourselves included have commented on the obvious performance deficits of smaller plants. Manufacturing plants with fewer than 500 employees report substantially lower labor productivity, capital intensity, and worker compensation than do larger plants. Moreover, these gaps have been widening over time. The rationale for manufacturing extension rests in part on the argument that smaller plants constitute an inefficient, low-productivity segment of the economy whose improvement would benefit the overall economy. Again, among plants with fewer than 100 employees, only the top 25 percent report capital per worker at or above the median for large plants.
Pay is also clearly related to plant size.
What these data obscure, however, is the relationship between performance and company size. Indeed, a careful look at the numbers reveals almost no performance gap between large plants and the small-plant operations of large firms. It is only among plants that are owned by small companies those with fewer than 500 employees company-wide that substantial performance deficits appear. Figure 3 provides the evidence. This is roughly twice the capital per worker reported by the median small-company plant.