Book Raps Idea That Small Business Is Beautiful : Companies: Authors say large firms offer higher wages, better benefits and more job security.

The 1980s venerated the small company as lean and mean--the engine of the economy and the backbone of the business world. Small business was seen as a nest for creative, happy workers, a wellspring of new jobs and the birthplace of innovation.

Here come the ‘90s. A new book due out in June bashes those notions and argues that, rather than “small is beautiful,” small is, on average, not very pretty at all.

Large companies--those with more than 500 employees--offer higher wages, better benefits and more job security, the authors say. Large and small companies appear not to differ much in the amount of training they give their employees, and job satisfaction apparently isn’t dependent on company size.

And the notion that small firms create the jobs that fuel the economy is a myth, the authors maintain.

James L. Medoff, a Harvard University economics professor and co-author of “Employers Large and Small,” to be published by Harvard University Press, said the positive image of small companies comes from Americans’ ingrained distrust of any large organization.

“We are really a Populist society,” Medoff said in an interview. “We have come to believe that anything small is good.”

But in business, he argued, the positive image of “small” has given the small-business-owner lobby so much power that the small-business employee suffers.

“There are two American work forces,” he said. “One is the 50% of the labor force that is employed by large companies. It is treated well, and the government watches over it. The other (small-company employees) is not watched over at all.”

The aim of the book--co-authored by Charles Brown of the University of Michigan and James T. Hamilton, a Harvard teaching fellow--is to present evidence that public policy favors the large-company employee.

“Good policy should be impervious to size,” Medoff said. “If unsafe working conditions are no good, they’re no good for everybody, and small companies shouldn’t be exempted.”

One powerful illustration of the small-business punch was last fall’s repeal of Section 89, a part of the Tax Reform Act of 1986 addressing company benefits. Some businesses might have had taxes imposed on their benefits; businesses with fewer than 20 employees would have been required to offer a health plan to all workers.

Groups such as the Chamber of Commerce and the National Federation of Independent Business banded together, pulled out all the stops and insisted on unconditional victory on Capitol Hill. In the end, the benefits-tax law remained unchanged.

The research of Medoff and his colleagues paints an unflattering picture of small companies:

*Job creation: The oft-quoted statistic is that small business is responsible for eight out of every 10 new jobs. Medoff looks at the creation rate of those jobs as well as their duration. Small Business Administration data does indeed show that small business was responsible for more than its share of current jobs: 63.5% of the total in 1980-86 and 59.7% in 1976-82.

But the book argues that a more accurate way of looking at the numbers is to look at industries: The jobs are actually coming from industries--such as consulting, financial services, real estate and health care--that are dominated by small companies.

Industries in which 60% or more of the workers are employed by small business--about half of private-sector employment--accounted for 85% of the increase in net employment in 1981-86, according to SBA figures.

In other words, when the economy grew, certain industries were stimulated, and small businesses in those industries rode the wave of job growth.

Small-company jobs also are less likely to remain in the economy, Medoff said. Employment in small firms that existed in 1981 declined by about 10% over the next four years, while employment in large firms existing in 1981 remained essentially unchanged.

Employment has shifted toward industries dominated by smaller firms. At the same time, it has shifted away from small firms in those industries. So, Medoff said, a policy favorable to small business is not necessarily going to generate new jobs.

* Working conditions: Although confessing that solid data is hard to come by, Medoff and his colleagues conclude there is a slight increase in pay associated with working at a large location-”the exact opposite of what one would expect if larger workplaces had inferior working conditions.”

Citing length of time in a job as evidence of job satisfaction, Medoff said Labor Department surveys show that those working for large companies are less likely to change their employer. There also appears to be more internal job movement among workers of large firms.

* Salary: Large employers offer much higher wages than smaller ones. The average wage of workers in large firms was 35% higher than their counterparts in small firms, according to 1983 Bureau of Labor Statistics figures.

Many explanations are possible for the existence of such a pay gap, Medoff said. It could be because larger establishments require higher levels of skill or training.