Can Small Business Save the Job Market?
May 22, 2012
Small businesses are considered the main drivers of job creation in the U.S., but hiring remains sluggish nationwide. Can smaller firms ramp up hiring enough to jump-start the labor market in the near future? The small business sector has traditionally been the engine of United States job growth, employing the largest share of American workers and accounting for the majority of new jobs. While small business job production has been relatively strong throughout the economic recovery, it has yet to match earlier hiring levels and the labor market continues to struggle, raising concerns about whether small businesses can revitalize U.S. employment. According to a joint report However, small business hiring has experienced a slowdown in recent months. The latest jobs data from the National Federation of Independent Business "While firms have eased lay-offs, they haven't resumed strong hiring. Unemployment claims remain high and seasonal adjustments are off track as hiring, normally done in March and April, may have occurred earlier in the year," the NFIB explains. "The percent of owners reporting hard to fill job openings rose 2 points to 17 percent, one point below the January 2012 reading which is the highest we've reported since June 2008." Overall, 47 percent of small business owners hired or tried to hire additional staff in the past three months. In the short-term future, 18 percent are planning to increase employment at their firm, while 5 percent plan to make payroll reductions. "While small business job creation isn't as strong as we'd like, it's stronger than many people think," Bloomberg BusinessWeek In the first 33 months of the economic recovery, small businesses added approximately 2.6 million new jobs, representing a 2.9 percent increase in employment. This rate of job creation was faster than in the period following the 2001 downturn, when small firms added 1.8 million jobs - a 2.1 percent increase - in the first 33 months of recovery. At the current rate of job creation, small business employment will return to pre-recessionary levels by the end of 2013. Although conditions have been improving, many companies remain reluctant to hire due to lingering concerns about the economy. A significant number of small businesses are still focused on cutting costs and operating on tighter budgets. Rather than expanding, these firms have had existing employees take on additional responsibilities and work longer hours, and many have shifted projects to freelancers and other independent contractors instead of adding full-time staffers. "Many small business owners aren't hiring or expanding because the outlook for the economy, or their own companies, is uncertain," the Associated Press "The economy is growing, but that growth has slowed - and so has the pace of hiring among businesses with less than 500 employees." A major impediment to small business job creation is the declining proportion of younger firms and startups within the larger economy. A report this month from the Ewing Marion Kauffman Foundation "[The report's authors previously approached the role of new firms as job creators in 2010, when they published a report challenging the conventional wisdom that small businesses of all ages are the source of new jobs. They found it was young firms - not all small businesses - that fulfill this role," CNN Money Another major obstacle to hiring is that small businesses are having difficulty accessing credit. The limited availability of capital from banks is preventing many companies from expanding and adding jobs. In the Washington Post It also remains to be seen whether recent legislation allowing small businesses to engage in crowdfunding