Arboriculture & Urban Forestry 33(4): July 2007 295 arboricultural industry or more than 3500 workers in the util- ity services industry. The names or numbers of national, re- gional, and local companies that specialize in arboriculture or vegetation management are presented in Table 1. The four-firm concentration ratio (C4) is commonly used to measure the market structure of industries (Demsetz 1973; Weiss 1989; Salinger 1990). The C4 is the share of an in- dustry’s sales that are accounted for by the four largest firms (Carlton and Perloff 2005) and, thus, the C4 for arboriculture would represent the receipts of the four largest (measured by receipts) arboriculture firms divided by the receipts of all (na- tional, regional, and local) arboricultural firms. The C4 could be used to test the hypothesis that a single arboricultural company or small group of them influences the prices of arboricultural services (Levy 1985) and there are numerous examples of using the C4 for this purpose (Curry and George 1983). Quantitative measures of the arboriculture and utility ser- vices industries are presented in Table 3. Receipts per estab- lishment, employees per establishment, and receipts per em- ployee are self-explanatory. Receipts per employee hour were calculated by dividing the receipts per employee by 2000 hours (40 hours per week times 50 weeks). RESULTS AND DISCUSSION Ornamental shrub and tree services, the combination of ar- boriculture and vegetation management, has seen tremendous growth in numbers of establishments, employees, and real receipts (Table 2). Between 1992 and 2002, the annual growth rate of number of establishments was 21%, number of employees was 12%, and real receipts was 9%. For the sec- ond half of that period, annual growth rates increased sub- stantially (Table 2). Figure 2 shows the breakdown of landscaping services into industry segments by establishments, receipts, and employ- ees. Arboricultural services accounted for just over one- fourth of establishments and roughly one-fifth of receipts and employees. Arboriculture firms with employees average al- most four workers per establishment and, although they are outnumbered by single-employee arboriculture firms by more than two to one, their receipts exceeded the single-employee firm by nearly six to one in 2002 (Table 3). In economics terms this is called increasing returns to scale. As number of employees increase, production increases at a greater rate. Factors like division of labor and better use of equipment allow for these efficiencies. This is also called economy of scale and it means there will be a decreased unit cost as output increases. Figure 3 illustrates that the arboriculture firms with em- ployees, when compared with single-employee and in-house arboriculture services, produce most of the industry’s receipts with 61% of the employees. The average employing arbori- cultural establishment posted $296,000 in receipts in 2002. The data in Table 3 can be used to calculate averages. For example, arboriculture establishments with employees posted an average of $39.40 in receipts per employee hour repre- senting annual receipts per employee of $78,807. Table 3 shows that arboriculture employees account for the bulk of re- ceipts and likely are the most highly skilled workers of the landscaping services industry (Bureau of Labor Statistics 2005). Nonemployer arboriculture firms, which are counted as both establishments and employees, may outnumber those with employees but receipts are substantially less (Table 3). With just over one-third of employees, they account for less than one-sixth of receipts in the arboriculture industry (Figure 3). Receipts per employee hour are calculated at $11.51, con- siderably lower than employing arboriculture firms (Table 3). Nonemployers may have less stringent income reporting re- quirements and are less likely to work only 2000 hours per work year (Smith and Reither 1996). Nonemployers may in- clude some individuals who are full-time employees of estab- lished firms and who perform some tree care work on the side. In-house arboricultural employees are estimated to be only 3% of the total arboriculture industry (Figure 3). More de- tailed analysis of the in-house sector is not possible with currently available data. The national arboricultural firms earned 4% of total re- ceipts in the United States in 2002 and the C4 ratio is also only 4% (Table 3). Obviously, the top four firms used to calculate the C4 closely represent the national firms. Local firms dominate the national and regional firms in term of receipts in 2002 (Figure 4). If the arboriculture industry op- erated in one market that was national in scope, then the four-firm concentration ratio might be interpreted as consis- tent with the hypothesis that arboriculture is a relatively com- petitive industry. This is a very low C4 ratio, which usually indicates an industry operating under perfect competition. This compares with agriculture with a C4 ratio of about 5% and overall landscaping services with a C4 ratio of 10.8% (U.S. Census Bureau 2002). However, total receipts of C4 firms and national firms do not correspond to revenues in one national market but primarily to revenues from thousands of local and tens of regional markets. The dominance of single- employee arboriculture firms that require minimal startup capital (truck and chain saw) is evidence of a price- competitive industry (Demsetz 1982). The number of nonemployer companies participating in arboriculture and their corresponding receipts per employee hour suggest that the capital requirement necessary to par- ticipate in the industry are at least initially relatively low. As the company grows and hires employees, additional costs such as workers’ compensation insurance become necessary. It follows that nonemployer companies should be able to offer services at a lower price. That is, profit incentives exist for nonemployer companies. Why then should an arborist organize as a firm to hire workers at all? There are relatively small economies of scale of management and average cost ©2007 International Society of Arboriculture
July 2007
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