In the two decades leading up to The Great Recession two-thirds of all new jobs in the US were created by small businesses. According to USA Today, in an article titled, Waiting Game: Why Small Businesses Will not Hire, “Even as the economy extends its growth and small businesses slowly add jobs, most owners are still holding off on hiring … Wells Fargo found only 21% planned to hire, and in a Citibank survey, 25% had plans – numbers consistent with other surveys in the past year. ”
One small business owner, who had to lay off 11 employees in 2009, now gives over-time to workers rather than risk expanding his work and to probably have to lay off workers again. Others say they can not find workers with the right skills to jump in and start the job without expensive training. According to BLS data, in the 1990's new firms hired an average of 7 to 8 workers, now they are hiring 4 or 5. They are investing more in technology and less in labor to become more efficient.
This is a big debate on the minimum wage issue. I can not think of anyone who does not want (any) worker to have a living wage, but what is the tradeoff? Why do we need hotel clerks? You could simply insert a credit card into a kiosk, in the hotel lobby, and it would tell you your room number and program your credit card to open your room. What about McDonald's? Why can not customers punch in their own orders and swipe a credit card? The reason for not doing these examples is customer service. How does one chain differentiate itself from another? But it is clearly a path small businesses will take to cut costs if push comes to shove.
Businesses need access to capital to grow, but access to capital for small businesses is a significant problem. SBA data show that small businesses (those with 500 or fewer employees) amount to 99.7% of all businesses and employ 49.1% of private sector employment. Clearly, small business job growth is critical after a recession. Pepperdine University published a study that showed a large discrepancy in bank loan approval rates: 75% of medium-sized businesses that bought a bank loan were successful, compared with 34% of small businesses and only 19% of micro-businesses. (Micro-businesses are defined as those with less than $ 500,000 in annual revenue.)
Many argument that an increase in government regulations has caused a pause in small business hiring. A recent report from the Congressional Budget Office (CBO) estimates that the Affordable Care Act (Obamacare) will reduce the total number of hours worked, on net, by about 1.5% to 2.0% per year during the period from 2017 to 2024. The reduction in the CBO's projections of hours worked represent a decline in the number of full-time equivalent workers (not actual job loss from full-time workers losing their jobs) of about 2.0 million workers in 2017, rising to about 2.5 million workers in 2024 .
Regulatory burdens on Americans increased by nearly $ 70 billion during President Obama's first term in office, according to the Heritage Foundation. In the first two months of 2014, 72 new proposed regulations affected small businesses, with 12 of them costing $ 100 million in compliance costs, according to The Office of Information and Regulatory Affairs. There are more than 175,500 total pages in the Code of Federal Regulations, an increase of more than 21 percent over the last decade. In 2013 alone, more than 80,330 pages were added to the federal register, as reported by the Congressional Research Service.
Seventy-two percent of small businesses reported that regulations were hurting their “operating environment,” according to a recent Wells Fargo / Gallup article, causing 59% of owners to think it's a bad time for expansion. And 55% of small business owners say they would not start a business today given what they know now in the current regulatory environment.
We had a 1% drop the GDP in Q1 2014. It's easy to blame the weather, but over-regulation is killing job growth in this country and leading to anemic economic growth. This should be a wake-up call in Washington DC.