Analysts Watch for Signs Small Business Will Boost Hiring

By Chad Moutray
NABE Board Member, Chair of Small Business & Entrepreneurship Roundtable
Chief Economist, U.S. Small Business Administration

The Small Business & Entrepreneurship Roundtable, one of the three new roundtables created by NABE in the past few months, hosted a session at the Economic Policy Conference on small business challenges and opportunities, moderated and sponsored by Robert Strom of the Ewing Marion Kauffman Foundation.  With net nonfarm payroll losses exceeding eight million since the recession began, it should not come as a surprise that so many policymakers are looking toward entrepreneurship as a means of job creation and potential economic growth.

John Haltiwanger, a professor at the University of Maryland-College Park and a research associate for the Center for Economic Studies at the U.S. Census Bureau, focused his remarks on the dynamism of American businesses.  He noted the creative destruction that takes place when new firms are created and other firms close; in particular, there are strong linkages between productivity and firm survival, with the surviving firms operating at greater efficiency than their exiting counterparts.  Business startups and young firms play an important role in this process and are often cited as the source behind much of the nation’s net job creation.  Yet, it is also worth noting that much of that growth often stems from high-impact firms or rapidly growing companies that exhibit both high revenue gains and strong job growth.  These “gazelles” exist in every industry and every region, making it difficult for policymakers to pick winners and losers.

One of the immediate challenges to job creation, though, is the recession.  James Smith, the chief economist of Parsec Financial Management in North Carolina, addressed the concerns of small business owners.  He cited the monthly National Federation of Independent Business (NFIB) survey, which finds that poor sales are the top concern.  These owners are also hesitant to hire new workers or to invest in their businesses, at least until they see signs of an economic turnaround.  His comments were echoed by Alicia Robb, a senior research fellow at the Kauffman Foundation.  However, she noted that while small businesses do not cite access to credit as their top concern, it is still an issue for many of them.  She specifically referred to fewer capital deals, tighter lending conditions, and falling housing values (which many small business owners use for home equity in the operation of the firm) are examples.  Moreover, a recent NFIB study found an increasing number of discouraged borrowers who did not attempt to borrow for fear of denial.

The overarching message from the session was that small and young firms provide the vigor the economy needs for the United States to stay competitive and for the economy to grow.  Yet, right now, policymakers should focus on ways to stimulate the economy and to ensure that small business owners have sufficient capital for their firms. It will also be important to have policies that facilitate greater flexibility in workers, many of whom will need to have retooled skills in a globally competitive world where creative destruction is more commonplace and knowledge is the key to the nation’s ability to stay nimble.

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