When a recession ends, small businesses often lead the way in new hiring. But that’s not the case now.
New data from the federal Bureau of Labor Statistics show that as the severe downturn of the last few years was drawing to an end in late 2009, small firms were responsible for a majority of all private-sector job cuts. By contrast, large companies—those with 1,000 or more employees-did more hiring than letting go.
Businesses with fewer than 50 staffers, which employ nearly 30 percent of all private-sector workers, accounted for 62 percent of all job reductions in the fourth quarter, the BLS reported. Most of the hiring in the quarter also occurred at these small businesses—54 percent—but not enough to offset the layoffs.
The churn these numbers illustrate is nothing remarkable. While small business often is called the engine of job creation, this sector also is a top job destroyer, because many small firms do not survive their early years.
The worrisome aspect of the new data is the lack of a net gain in small-firm hiring as the recovery began.
Many economists say the small-business sector’s woes result from difficulty in obtaining credit. While surely that’s not the only factor, it’s certainly true that the financial crisis that precipitated the recession is making recovery unusually difficult.
Is there anything to be done? The White House thinks so. It has been pushing a plan for a $30 billion Small Business Lending Fund to invest in community banks—those with less than $10 billion in assets—by buying preferred stock. The cost of the money would decrease for banks that boost small-business lending.
Legislation passed the House in June, but Republican opposition has stalled the measure’s progress in the Senate. Some GOP senators claim this is the return of the Troubled Asset Relief Program.
That’s a cheap shot. The legislation provides for strong oversight to ensure that struggling banks do not receive investments. And the bipartisan Congressional Budget Office says that with bank repayments and dividends over a 10-year period, the fund would not cost taxpayers a penny.
Would the fund trigger $300 billion in private lending to small businesses, as the White House estimates? Maybe not. But even a modest increase in access to credit for small firms could help them turn the corner on hiring.
8/27/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail email@example.com.