Small businesses find tight job market, difficult to hire

Even with US economy booming

WASHINGTON, Aug 8, (AP): Even with the US economy booming and the job market strong, hiring has slowed among one category of employers: Small businesses.

Yet it isn’t because these companies are hurting. Far from it. Small businesses today are generally optimistic, and most say they’re enjoying healthy sales.

Rather, smaller companies are being hamstrung by the economy’s very strength: Low unemployment has shrunk the pool of job seekers and intensified competition for workers. And smaller companies are in many cases losing out to larger employers, which typically can offer more generous pay and benefits. Some larger businesses are also using their financial muscle to poach employees from smaller companies.

Also contributing to the slowdown in hiring by small businesses is a more discouraging trend: Americans are forming fewer companies. It’s a trend that began roughly three decades ago and worsened after the Great Recession. Fewer people could afford to start businesses as the availability of funding, such as borrowing against a home, began drying up. In addition, some industries, like retail and banking, are increasingly dominated by huge chains, thereby discouraging smaller competitors.

Americans started 414,000 companies in 2015, the latest year for which data is available, compared with an average of 524,000 annually in the five years before the recession, according to Census data.

Double-whammy

“Small businesses are hit by a double-whammy: (Startup) rates have been low and falling for a long time, so the relative importance of small businesses in hiring has been declining,” said Giuseppe Moscarini, an economist at Yale University. “And small firms now are facing poaching rates typical of a healthy market, so they have a hard time retaining employees.”

Moscarini’s research has found that small businesses — defined as those with fewer than 50 employees — typically hire most aggressively at the end of recessions and early in economic recoveries. That’s when plenty of workers are available and generally don’t require generous starting salaries. By contrast, larger companies — those with over 500 employees — tend to accelerate hiring later in economic expansions.

“With unemployment low, big businesses tend to poach and attract workers from smaller companies that don’t have the financial resources to keep up,” said Mark Zandi, chief economist at Moody’s Analytics. “All the evidence suggests that small businesses are the principal casualty of the tight job market.”

Consider Troy Knutson. He would like to add up to a dozen employees to the 30-person company he founded, Knutech, which installs power generators and backup battery systems. Yet to find the electricians, engineers and technicians he needs, Knutson must compete with huge local companies near his site in Bradenton, Florida. They include defense contractor General Dynamics and engineering company Quanta Services.

Bigger

As Knutson knows all too well, the bigger firms have longer histories and far stronger financial foundations.

“A lot of employees are really looking for that,” he said.

A nearby community college, Manatee Technical Institute, trains the kinds of employees Knutson needs. But the larger companies recruit graduates at on-campus career fairs. Knutson has inquired about participating in the fairs but said he hasn’t heard back.

A survey by the National Federation for Independent Business, a small-business trade group, found that 37 percent of small firms had jobs they couldn’t fill in July. That’s the highest proportion on records dating to 1974.

Many small companies are raising pay to try to keep up, Zandi said. They boosted wages 2.9 percent in June from a year earlier, according to payroll processing firm ADP. (Zandi helps compile ADP’s data into employment and earnings reports.) That’s nearly twice the increase offered by companies with 500 to 999 employees and roughly equal to the increase that companies with 1,000 or more employees provided.

Still, those pay raises aren’t enough to close the overall gap between larger and smaller firms. Research by Nicholas Bloom at Stanford University has found that bigger companies, on average, pay 20 percent more than smaller firms, though the gap has narrowed since the 1980s.

Some economists say the struggles of small businesses in finding enough qualified workers will soon spread to medium-size and bigger companies.