Small Business Hiring Slow – Time to Worry?

It’s well known that job growth has been lacking in this economic recovery. One reason for the disappointment is that small businesses aren’t adding workers like they used to.

Small firms account for about half of GDP and employ about half the workforce. Small business has led us out of recent recessions and has been the driver of our economy for the past few decades.  But Goldman Sachs economists recently found small firms (defined as businesses employing less than 1-49 workers) have indeed underperformed medium and large companies.

These trends also contrast with the last business cycle of the early 2000s. Small firms barely lost any jobs in the 2001 recession and then outpaced medium and large firms in the expansion.

Goldman identified several reasons unique to small-company hiring.

First, small firms account for a disproportionately large share of construction jobs and those payrolls collapsed during the Great Recession.

Second, labor markets have seen a structural shift toward large company jobs. For instance, Goldman notes large companies’ share of retail employment has jumped 16 percentage points from the early 1990s to 64% today. Many mom-and-pop stores can’t compete against big box retailers.

Finally, large-business employment has tended to be more sensitive to the business cycle. When the U.S. recovery strengthens, big firms benefit a bit more.

The lag in small business hiring is also confirmed by ADP private sector numbers. Payrolls at private firms with less than 50 employees have increased 4.7% since the end of the recession through August, medium-size firms (50-499 employees) are up 6.1% and large firms (more than 1,000 workers) have increased payrolls by 7.4%.


Ira S Wolfe