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Although the average size of establishments rose through the expansionary years of the 990s, it has fallen during each year ofthefrst decade of the 2000s; a primary explanation is that new estahlishments are starting and staying smaller een observers of labor market statistics have noticed that theaverage size of establishments has been decreasing during the past decade. The average size of establishments rose through each of the expansionary years of the 1990s but then fell slightly during each year of the 2000s regardless of whether the economy was expanding or contracting, as shown in the bottom graph of chart 1.1 The opposing trends of these Bureau of Labor Statistics (BLS) data suggest that the US economy has changed in some fundamental way during the past two decades.

In this article, we seek to understand the change in trend in the average size of establishments during the last two decades. We …