Economic uncertainy keeping small businesses from hiring

July 18, 2011

Austin Business Journal

Kent Hoover

Small business, the traditional source of job creation in the U.S., is out of gas.

That’s a big reason why the economy created only 18,000 jobs in June. Three new reports shed light on why small businesses aren’t playing their usual leadership role in this economic recovery:

Small business owners continue to be pessimistic about the economy, according to the National Federation of Independent Business. Its monthly index of small business indicators fell one-tenth of a point in June to 90.8, a reading indicative of recession. Only 4 percent of small business owners surveyed said now is a good time to expand.

Only 19 percent of small business owners plan to add employees over the next year, according to a survey conducted by Harris Interactive for the U.S. Chamber of Commerce. Economic uncertainty was cited as the biggest obstacle to hiring, followed by poor sales and political
uncertainty.

Startups are hiring fewer workers than they did in the past, according to the Kauffman Foundation. That’s important because startups have been responsible for most of the economy’s net job gains, creating an average of about 3 million new jobs a year. In 2009, however, that number fell to 2.3 million and has remained depressed, according to Kauffman. New businesses not only are opening with fewer employees — 4.9 jobs on average now versus 7.5 jobs in the 1990s — they also are adding jobs at a slower pace.

“We need to find a way to start more employer businesses, ensure that they are larger and nurture their growth,” said Robert Litan, Kauffman’s vice president of research and policy.

Business groups and elected officials have suggested steps the federal government could take to encourage more private-sector job growth. These suggestions include funding long-stalled transportation projects, which would help the hard-hit construction industry, and extending this year’s payroll tax cut for workers and expanding it to employers as well.

Would trade deals create jobs?

Most business groups also strongly support passing free trade agreements with South Korea, Colombia and Panama.

The Obama administration has submitted these trade pacts to Congress, but their prospects have been clouded by a side issue: The president insists these deals be accompanied by renewal of Trade Adjustment Assistance, which provides jobs training and other help to workers who have lost their jobs as a result of foreign imports. Republicans think that assistance should be considered as separate legislation.

Tom Donohue, president and CEO of the U.S. Chamber of Commerce, urged Congress to pass these trade deals quickly.

“Immediate jobs are at stake — 380,000 of them,” Donohue said. “That’s how many jobs we’ll lose to competitors who have cut their own deals with these countries. With these agreements, we can create tens of thousands of new jobs.”

Critics, however, contend these trade deals will cost jobs in the U.S.

“We would all be wise to remember that free trade agreements have been bad news for the American worker in the past,” said Rep. Louise Slaughter, D-N.Y.

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