Small Business Job Growth May Be Lagging Somewhat

The economic recovery of the last few years has been a very strong positive for small businesses, but new analysis shows that it has perhaps not been as good as it possibly could be.

Historically, small businesses have – despite the fact that they are usually limiting themselves to just a few employees each – used the sheer numbers they have nationwide to significantly outpace hiring compared with that of larger companies, but now there is some data to suggest that the recovery has led to something of a drag on these processes, according to a report from the Federal Reserve Bank of San Francisco. In the 15 years prior to the recession, small businesses employed about 30 percent of nonfarm private sector employees across the country, but also carried about 35 percent of hiring growth during that time. However, at the same time, employment among those companies also shrank, due in large part to many enterprises which had previously had few enough employees to be counted as “small” grew out of that designation through additional hiring.

However, between 2007 and 2012, which covers the entire recession and then a few years following, net job loss among small businesses was nearly 60 percent of the total share of positions shed nationwide, bringing the total number of workers employed by smaller companies down some 11 percent, the report said. Conversely, those with 50 or more workers only lost about 7 percent of payrolls.

It seems that much of this reason for the more significant drop in small business payrolls nationwide is the result of tougher financial situations brought on during and even following the recession taking a larger toll on these companies rather than their larger competitors, the report said. Big companies, with larger workforces and, likely, more money overall, may have been more capable of absorbing the hit they took at least somewhat more comfortably.

Further, there remains – across the entire country – a general weaker-than-usual demand for the goods and services provided by smaller businesses, the report said. Many small business owners, even today, cite weak sales numbers as one of their major concerns, while those of larger businesses have been less pronounced thanks to a speedier recovery for demand when it comes to their offerings, and the latter also benefited from the fact that their size gave them additional options when it comes to “geographic diversification.”

Is this affecting job recovery as well?
Meanwhile, while smaller companies have had greater success hiring more recently, it may still be slow in comparison with historical norms, the report said. This could be due in large part to the fact that while many of the nation’s largest lenders have still not broadened small business lending in the way that they have for larger companies, meaning that it’s far more difficult for independent operations to find the financing they may need to give them added flexibility when it comes to hiring.

As a consequence, many small business owners may be racking their brains in trying to figure out how they can expand hiring these days, and one thing that may allow them to bring on more workers is to free up money by finding more affordable small business insurance plans. By reducing company costs for policies such as workers’ compensation or general liability insurance, small business owners may be able to find some added flexibility that will, in turn, give them the kind of breathing room they might want so that they can feel good about hiring once again.