Weak Hiring By Small Businesses Stalls Economic Recovery

July 12, 2011

After a disappointing June jobs report, a survey of small business owners revealed more evidence that economic recovery will remain stubbornly slow.

Small businesses are known to be the lifeblood of the private sector. As CNN Money pointed out, small businesses--defined as those with $25 million or less in revenue--account for more than half of all private sector jobs. In fact, over the past 15 years, small businesses have created 64 percent of net new jobs, according to the Small Business Administration's Office of Advocacy. However, the Small Business Outlook Survey, which polled 1,409 small business owners and executives and was released by the U.S. Chamber of Commerce, showed that small firms have been sitting idle and will continue to do so. According to The Wall Street Journal, 64 percent of small business owners reported that they would not hire new employees in the next year. Meanwhile, 12 percent said they planned to cut jobs and just 19 percent said they would increase their work forces.

Fifty five percent cited economic uncertainty as the biggest deterrent to hiring and 34 percent reported a "lack of sales" as the reason they were not planning to hire. Just seven percent blamed it on problems getting credit.

"I think it's safer to stay on hold and not hire workers," said Harold Jackson, chief executive of Buffalo Supply, a small company that distributes high-tech medical equipment for operating rooms. Since 2009, Jackson has cut his staff in half to just 15 employees and said he does not plan to start hiring anytime soon, even if business picks up.

The survey also showed that business executives were pessimistic about the fate of the economy. Just 29 percent believed that the economic climate would improve and roughly 84 percent said the U.S. economy was heading down the wrong path. When it came to their own futures, however, business executives were more confident. Thirty nine percent expected their own business to improve in the future and 61 percent felt their business was headed in the right direction.

In related news, Reuters reported that a study by the Kauffman Foundation found that new businesses are starting smaller and hiring less than was the case in the past. Findings were based on analyses of data from the Bureau of Labor Statistics and the Census Bureau.

"Startups are the key to long-term employment growth, and they have been hiring fewer people for the last several years," said Robert Litan, Kauffman Foundation vice president of research and policy and co-author of the study. "We won't fix our core unemployment problem in the United States until young businesses get back on track."

Both studies urged policymakers to encourage, rather than impede, small business growth.

"We need to find a way to start more employer businesses, ensure that they are larger and nurture their growth," Litan said.

Compiled by Heidi M. Agustin