Industry Market Trends

Will Small Business Hiring (Finally) Pick Up?

Jan 08, 2013

Now that some of the fiscal cliff issues that would have impacted smaller firms have been resolved (albeit temporarily), it's natural to wonder whether 2013 will deliver better market conditions for the small businesses that drive the U.S. economy, particularly when it comes to growth and employment.

Many analysts are already declaring 2013 to be the Year of Holding Steady. While few imagine a great jump forward for the economy this year, the good news is that no one is forecasting any major back-slipping, either, barring unexpected disasters. Business credit is also loosening a bit, enabling small businesses to obtain loans more easily.

According to Capital One's 2012 Small Business Barometer, a quarterly study that examines general economic indicators and small business perspectives on the economic environment, about 45 percent of small business owners believe that in 2013 economic conditions will remain about the same. Although 29 percent of small firms report improving economic conditions, this represents an eight-point drop from the third quarter of last year.

The NFIB Small Business Optimism Index provides a more negative outlook: the index dropped 5.6 points in November 2012, reaching a low of 87.5, and ended the year at 88. The index's baseline reading is 100, with optimism peaking at around 108 in 2005. The reasons cited for the recent downturn include drooping sales, poor business conditions, and a poor investment and credit environment.

What does this mean for small business hiring and job creation? Labor market prospects are somewhat mixed, despite small reductions in the national unemployment rate. A majority of small businesses (69 percent) say they do not plan to boost their headcount in the next six months, compared to 65 percent who said the same in the third quarter of 2011.

The annual hiring forecast from CareerBuilder supports these results. While small businesses are a little more positive about the economy, they plan to continue being cautious when it comes to hiring. The poll found that 24 percent of businesses with fewer than 250 employees plan to add full-time permanent staff in 2013; this figure is up from 20 percent in 2012. Just seven percent plan to reduce headcount, a figure that is up three percentage points from last year.

However, 55 percent of companies plan to keep their headcount unchanged, much like the majority of firms polled by the NFIB.

There are a number of external factors causing small businesses to put the brakes on hiring in the immediate future. One is uncertainty about the economy - while the "fiscal cliff" debacle was averted at the end of 2012, it was merely delayed for two months, at which time another political showdown is likely to occur.

In addition, many firms are concerned about the Affordable Care Act (ACA), which will require companies with more than 50 employees to provide health insurance benefits to full-time workers or begin paying penalties in 2014. For firms that are just below the 50 employee mark, this is a very relevant development.

"Some firms may be holding back on hiring not to cross that threshold," a 2012 report from Moody's Analytics explains.

Most companies, small and large, agree in their hiring outlooks that skilled employees are becoming harder to find, and more companies are holding out for the right employees rather than making immediate hires that don't fit their job requirements. The most sought-after employees today are tech-savvy and well prepared for the expanding service economy, and employers are finding that the pool is simply too small to allow them to hire the types of workers they want.

Recruitment agencies that handle job candidates with technical skills are reporting a boost in interest for their services, and many companies have taken to poaching employees from competitors, with the promises of extra job perks, or using consultants to fill in gaps.

On the other hand, there is evidence that more companies are making alternative arrangements to full-time hiring in an effort to control costs. The practice of "gigging," or self-employment that involves juggling multiple short-term freelance contract jobs, is on the rise. In fact, about one-third of American workers are engaged in some type of "gigging" to fill in the gaps caused by a lack of full-time, salaried jobs, according to NBC News.

Many companies view this type of arrangement as a bonus: they get the work done by qualified people without the need to pay benefits or provide a physical office space.

"[These people] belong to a growing freelance segment of the labor force, an often skilled class of career jugglers and independents who create mosaic incomes from contract gigs, projects, part-time jobs, temp work, moonlighting, and consulting," NBC News reports. "This freelance nation fills the gaps that corporate America no longer wishes to cover with full-time salaried employees."

Hiring consultants is just one of the ways small businesses are coping with an uncertain economy, according to a study by PNC Financial Services. When asked what tactics they are using to cope with uncertainty, 42 percent of respondents said they are extracting greater productivity or efficiency from their employees, and one-third said they have reduced or consolidated their operations.