ANALYSES OF CONSTRUCTION INDUSTRY DATA
4.2 Size Distribution - 2002 Economic Census
The Economic Census data also can be used to construct the size distribution of business organizations. The 2002 Economic Census is another source of construction industry data. These data are published by the U.S. Census Bureau every five years.
The 2002 Economic Census provides information about business organizations at the establishment level for all U.S. industries classified based on NAICS (North American Industry Classification System). In the data set for each industry, business organizations are classified at the establishment level by the number of employees, the location, and the business volume done. The data also provide additional information such as the amount of payroll, specialization level, industry statistics, etc.
4.2.1 Size Distribution of Establishments in Construction
While the ENR data provide information about large construction firms that are ranked 1st to 400th based on firm gross revenues, the 2002 Economic Census data count business organizations at the establishment level and the size of an establishment is measured by its employment size, i.e., the number of employees. An establishment is defined as a single physical location where business is performed. A firm can have more than one establishment. Multiple establishments controlled by one firm may locate in more than one market sector.
In construction, firms that have multiple establishments are usually large in size.
According to an analysis using the Statistics of US Business which will be discussed in a later section in detail, during the 9 years from 1997 to 2005, the average number of
establishments per construction firm was 1.01. Meanwhile, for large construction firms that have more than 500 employees, the average number of establishments per firm is 6.94.
Table 4.4 shows the classification of the construction industry by 2002 NAICS, the construction industry is classified largely into three major sectors: 1) building construction; 2) heavy and civil engineering construction; and 3) specialty trade contractors. Refer to the website of the U.S. Census Bureau for details on sub-classifications.
Table 4.4 2002 NAICS Classification for the Construction Industry NAICS
23 Construction
236 Construction of Buildings
2361 Residential Building Construction
236115 New Single-Family Housing Construction 236116 New Multifamily Housing Construction 236117 New Housing Operative Builders 236118 Residential Remodelers
2362 Nonresidential Building Construction 23621 Industrial Building Construction
23622 Commercial and Institutional Building Construction 237 Heavy and Civil Engineering Construction
2371 Utility System Construction
23711 Water and Sewer Line and Related Structures Construction 23712 Oil and Gas Pipeline and Related Structures Construction
23713 Power and Communication Line and Related Structures Construction 2372 Land Subdivision
2373 Highway, Street, and Bridge Construction 2379 Other Heavy and Civil Engineering Construction 238 Specialty Trade Contractors
2381 Building foundation and exterior contractors 2382 Building equipment contractors
2383 Building finishing contractors 2389 Other specialty trade contractors
Using 2002 Economic Census data, size distributions of establishments for construction can be constructed for the total industry, as well as each of three major sectors classified in Table 4.4. Figure 4.11 shows the four different size distributions of establishments (measured by the employment size). Power laws are observed again in the log-log plots for total general contractors and each group of general building contractors, heavy contractors, and specialty trade contractors. The linear trend lines have negative values for the slopes and positive values for the intercepts. Also, they all have very high R-squared values.
Total:
Figure 4.11 Size Distribution of Establishments in Construction
The slopes of linear trend lines in Figure 4.11 are lower than the slope found using the ENR top 400 Contractors data, which is -1.836 as shown in Figure 4.8. These
differences between the ENR data and the Economic Census data would be due to the differences in the size measurement of organizations and the level of data. The ENR U.S. top 400 Contractors data take into account firms and the size of a firm as measured by firm gross revenues in U.S. dollars. Also, the firms in the ENR data are all large firms in the U.S. construction industry (having more than 500 employees). On the other hand, the 2002 Economic Census data count establishments and the size of an
establishment is measured by the number of employees. And, the data include establishments of all sizes.
However, the size distributions using two different industry data sets have one common characteristic, which is linearity with negative slopes. Moreover, using the 2002 Economic Census data, a similar slope (to the slope using the ENR data) is found when only large establishments (more than 100 employees) are used to construct the size distribution, which is shown in Figure 4.12.
Table 4.5 provides a comparison of the size distributions using different
construction industry data, for different market sectors and different size groups. There are small differences in slopes. The differences might be due to some specific
characteristics between sectors. Different characteristics could be found in the level of risk in jobs and competition, different overhead expenditures or capital needs, higher or lower entry barrier, level of equipment uses, etc. The identified differences in the size distribution among different market sectors are left for future investigation.
Total (Large Establishments):
Figure 4.12 Size Distribution of Large Establishments in Construction
Table 4.5 Comparison of Size Distributions for Different Market Sectors
Data Population in the Data Slope Intercept R2 ENR top 400
Contractors Large firms -1.836 15.05 0.985 Total establishments in construction -1.226 14.52 0.976
Establishments in building
construction -1.268 13.24 0.990
Establishments in heavy and civil
construction -0.906 11.28 0.952
Establishments in specialty trades -1.317 14.32 0.962 2002
Economic Census
Only large establishments -1.730 17.63 0.993
4.2.2 Size Distribution of Establishments in Other Industries
Different shapes for the size distribution are found in other industries. The 2002 Economic Census also provides other industries data. For the purpose of comparison, establishment data on the total manufacturing industry and the paper manufacturing industry were analyzed. Figures 4.13 and 4.14 provide the size distributions of establishments in these industries.
The two distributions are different from the construction industry. For the total manufacturing industry in Figure 4.13, the data (frequency of firms) are deficient at the small firm level compared to the linear fit. That is, large firms have driven small firms out of business, but this is not true in construction. Meanwhile, in Figure 4.14, a significant curvature is found for firms in paper manufacturing, which is a capital-intensive industry. In general, paper manufacturers utilize large automated machines that are expensive and they need little labor to manage the machines. So, the number of establishments with small employment sizes is less than the power law would predict.
The differences in the size distributions of firms in different industries, especially the slopes, might be due to differences in the characteristics of their businesses. As discussed earlier, the differences would be found in the level of capital needs (labor-intensive or capital-(labor-intensive), overhead, different market risks, etc. And, due to these differences in business environment, organizations in an industry could compete with each other in different ways. It will be an interesting topic for future investigation. The current study leaves it behind to focus on the investigation of competition in the
construction industry.
Linear:
Figure 4.13 Size Distribution in the Manufacturing Industry
Linear:
Figure 4.14 Size Distribution in the Paper Manufacturing Industry