Are Small Businesses Hiring Yet?

America has lost more than 8 million jobs since the Great Recession began. And even though most economists believe the recession ended last summer, unemployment remains at 9.7 percent. We clearly need more job creation.

Because half of all jobs in the U.S. are in businesses with fewer than 500 employees, small businesses need to begin creating jobs if we are going to replace the millions of lost jobs. So are small businesses hiring yet?

Recently, I took a look at some key data sources to answer that question. While a couple of indicators suggest an answer of “yes,” most do not.

Let’s start with the most positive measure. As you can see from the figure below, the Intuit Small Business Employment Index, which is based on “online data from approximately 50,000 small business employers with fewer than 20 employees who use Intuit Online Payroll,” shows that small businesses have been hiring since mid-2009. According to the Intuit Index, small businesses have added 150,000 jobs since last summer.

Hiring comparing Intuit and ADP reportsHowever, the ADP Employment Report, which measures the number of people employed in establishments of fewer than 50 employees using numbers from ADP’s payroll data, doesn’t show the increases seen in the Intuit data.

(The difference between the two measures might indicate that small businesses have begun to hire, but small establishments that are not independent businesses have not yet started to take on more staff, or it might show that small businesses with between 30 and 50 employees aren’t yet adding employees, while the smallest businesses are.)

Two other sources – Discover Small Business Watch and the National Federation of Independent Businesses’ Small Business Economic Trends – don’t look at actual payroll data, but instead survey small business owners about their hiring plans. The Discover Small Business Watch, which is a monthly survey of a representative sample of 750 business owners with fewer than five employees, includes a question about hiring plans over the next few months. The figure below shows the percentage of respondents who say that they plan to hire minus the percentage that say they plan to play off workers in coming months. While the figure shows that the declines in the measured experienced over 2007 and 2008 have stopped, the measure currently remains in negative territory.

Employment based on Discover Samll Business WatchThe National Federation of Independent Businesses (NFIB) creates a similar measure from surveys of its members, who tend to run larger small businesses than the respondents to the Discover Card survey. The figure below shows two of the NFIB’s measures. Its job openings measure captures the percentage of responding small businesses with jobs that they cannot find candidates to fill, while its hiring plans measure calculates the percentage of small businesses that plan to increase hiring minus the percentage that plan to decrease hiring in the following three months. The NFIB data show a slight increase in the percentage of companies with job openings since December of 2009, but indicate that as many small businesses still plan to decrease hiring as plan to increase it.

Hiring based on NFIB Economic Trends report

Compensation and work hours at small businesses also remain weak. The Intuit Small Business Employment Index shows no increase in compensation or work hours since September of 2008. The NFIB measure of the percentage of small businesses increasing compensation minus those decreasing it over the previous three months has been largely flat since February of 2009, having declined dramatically from January 2007 until that time.

In short, while there are a couple of indicators that small businesses are starting to hire again, when taken together, the different measures don’t show any evidence of a clear revival in small business hiring.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

10 Reactions
  1. It’s going to be a long, hard recession.

  2. General sentiment during this recession is much more conservative than previous recessions. Therefore, I see job creation happening, but at a more deliberate rate.

  3. NO We’re not hiring yet – Property Equity formerly used for payroll collateral is gone thanks to the RealEstate crash.
    Banks aren’t lending without substantial collateral.
    And tax credits? If we don’t have money for payroll, what good is a tax credit? We’ve been in business 25 years, survived many economic up and down times, never have seen it this bad. We cashed in our retirement savings to keep as many employed as possible, but it’s running out. After Wall Street was restored, why in the world we thought help was on the way, is beyond me. Wish now we had just closed the doors.

  4. Recession affects many countries not just in US. There are many unemployed now and it’s sad to know that other businesses out there take advantage of this recession. They tend not to benefit and pay they’re employees well enough because they know the people are afraid to quit the job because there are no enough job opening out there. In result, employees suffers from this abusive management.

  5. In general, employment is what economists call a lagging indicator — the recession has already ended before employment turns up. What I find most interesting in all the charts, except perhaps the ADP index, is that the previous downward trends have flattened out. If this is correct, it means that small business employment is holding steady rather than declining. We should see this itself as good news, like the green on the horizon before the dawn.

  6. I found the following entry on BizSugar:

    Why the Economy will Rebound Faster than Employment by Ken Kaufman.

  7. Matthew Bogosian

    Unfortunately, our belts will have to stay tight for a little while longer. But believe it or not, but there is a silver lining to this cloud. These are trying times which disproportionately pressure small businesses in to becoming and staying more efficient. Increased efficiency is frequently accompanied by a reduction of waste which often has a side-effect of environmental benefits.

    I run a small AMSOIL motor oil dealership in Monterey CA. We sell primarily to individuals and small businesses. While generally the economy here has been quite poor, I have actually experienced an increase in sales these past months because I have a product which saves my customers time and money by allowing them to safely go three-to-five times as long between oil changes. It’s not a huge sum, but as many have noted, every dollar helps, and those dollars add up over time. This is great for local businesses that perform deliveries or home services (house cleaners, plumbers, restaurants, contractors, gardeners, tree-trimmers, etc.).

    As a side benefit, my customers use less oil, their vehicles are out of commission for maintenance less often (which for small business usually means fewer trips to the Quik-E-Lube). All of that means less pollutants going into the environment.

    There are plenty of ways for small business to save money and decrease their ecological footprint in the process. Times like these provide motivation to find them.

    It turns out there’s something to that old adage, “waste not, want not.”

    Hopefully things like this will allow us to weather the storm until the sun comes out again….

  8. Matthew Bogosian

    By the way, if you’re a small business owner who might be wasting oil, feel free to contact me ( I’d be happy to help with your bottom line until things get moving again.

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