Warwick Business School

Key learning objectives  Be able to compare and contrast small and large business workplaces  Critically evaluate if small businesses are ‘better’ places to work

Warwick Business School Who pays better?  Large businesses pay more because they: Have more market power (higher profits) Better qualified workforce Have higher performance standards Can’t distinguish between good and bad workers  Small businesses Employ lower pay groups (e.g. women, young people, ‘low’ skilled) Younger businesses  Still ‘size-wage premium’ persists after controlling for such factors

Warwick Business School Large businesses provide greater fringe benefits

Warwick Business School Why don’t small firms provide as much formal training as large businesses?  Training your workers leads to both firm and individual worker benefits  So why are small businesses less likely to formally train their workers?  Explanation 1: there are ‘barriers’: Entrepreneurs are unaware of the benefits of training The ‘right’ training (e.g. cost and appropriateness) is not offered Entrepreneurs have ‘negative’ attitudes towards training  Approach assumes that small businesses training practices should resemble that of larger businesses

Warwick Business School Explanation 2: Market-based explanation of take up of formal training  Assumes that entrepreneurs are ‘informed’ rather than ‘ignorant’ consumers of training Limited ‘slack’ resources to support training Training increases likelihood of poaching Gaining qualifications increases poaching Entrepreneurs favour short term horizon Diversity of training needs Entrepreneurial resistance (e.g. what is the value of training?)

Warwick Business School Evidence on training  Both ‘barriers’ and ‘market based’ explanations share features (e.g. lack of ‘slack’ resources) but evidence tends to support market-based rather than barrier-based explanation for formal training  What is less clear is the importance of informal training in both large and small businesses

Warwick Business School Less safe working conditions in smaller businesses

Warwick Business School A lack of awareness of Health and Safety issues

Warwick Business School Greater levels of job satisfaction in smaller businesses

Warwick Business School Why are small business workers more satisfied?  Large business workplaces have greater levels of formality (rules and procedures)  Smaller business workplaces marked by greater levels of informality (e.g. owner-managers more likely to know their staff)

Warwick Business School Formality and business size

Warwick Business School Review of small and large workplaces

Warwick Business School Review of small and large workplaces  Large workplaces pay better, provide better fringe benefits, provide more formal training and are safer places in which to work  Small workplaces have a workforce that is more likely to trust its managers. Despite being paid less, they also appear ‘happier’

Warwick Business School  Bolton (1971) identifies that small businesses marked by co-operation, mutuality and satisfaction  Rainnie (1989) identifies them as places of exploitation and poor working practices  Ram and Edwards (2003) suggest a more nuanced opinion based on: How social and economic structures impact on employment relationships in small businesses How owner-managers and employees respond and make choices in particular social and economic contexts

Warwick Business School Edwards et al. (2006) framework

Warwick Business School Conclusions  Large workplaces pay better, provide better fringe benefits, provide more formal training and are safer places in which to work  Small workplaces have a workforce that is more likely to trust its managers. Despite being paid less, they also appear ‘happier’  Need a contextualised understanding of small business employment relations