SBSI Wave-5
Job Creation by Small Businesses
As the economic outlook improves, small businesses are now poised to hire up for 2011. Based on their hiring plans, the small business sector is expected to add 3.78 million jobs to the U.S. economy in the next 12 months (detailed below).
When asked about their hiring plans for 2011, 28 percent of small business owners expect to “increase staffing,” 2 percent expect to “decrease staffing,” and 69 percent expect no change. The primary reason for increasing staff is to expand the business (73 percent), while other reasons include reducing the workload of existing employees (32 percent) and replacing employees who left (10 percent).
Among small businesses planning to add staff, 50 percent plan to hire new permanent full-time employees, 39 percent plan to hire new permanent part-time employees, and 52 percent plan to hire temporary employees such as consultants, temps, etc. The number of additional staff varies, but if the quantity is expressed as “full-time equivalents4,” the typical business will add just 1 full-time job. However, many businesses are planning to add more than one job, so the average (mean) across businesses is conservatively computed as 2.3 full-time jobs.5
It is possible to aggregate the numbers in the survey to provide an estimate of the total increase in employment from small businesses in 2011. The total across the nearly 6 million small enterprises is 3.78 Million. Assumptions behind this estimate include6:
- 5,945,000 businesses that have payrolls with 0 to 99 employees (Census Bureau, most recent estimate from 2007)
- 27.8 percent add staff, an average of 2.34 each
- 2 percent reduce staff, an average of 0.83 each.
All surveys have a margin of error, or 95 percent confidence interval, because they are based on a random sample rather than a census. Taking into account this margin or error, the actual growth in employment could be as low as 2.90 million and as high as 4.65 million.
A final caution is that the employment totals assume small business owners carry out their intentions as reported in this survey. As shown in this report, confidence can change quickly, so owners may revise their plans based on the direction of the economy in the coming year.
The implications of this small business hiring surge can be great – 3.8 million jobs would reduce the unemployment rate by 2.4 percentage points. For the U.S. to realize this economic benefit, small businesses will need help to overcome obstacles that include a shortage of capital, efficiently marketing and positioning their brands, and managing and increasing their workforces. This help can come from many sources, including government, trade associations, big business, service providers, and small businesses helping each other.
Not everybody is suited to work in a small business, at least according to the men and women who own them. Small business owners offered their views on which employee traits are better suited for a small business, which are better suited for a large business, and which make no difference (see Figure 29). The ideal characteristics for a small business employee include: experience working in a small business, a flexible mindset, and a broad skill set. Many more owners feel that people with these traits are better suited for a small business than a large business – for example, 51 percent feel a person who has worked in a small business before is better suited for this kind of enterprise, while only 4 percent feel they are better suited for a big concern. With their smaller staffs, small businesses depend on employees to take on different roles and have the mindset and capabilities to do so; those who have worked in a small business already know this and will not be surprised.
Figure 29
Some traits are felt to be better suited for a large company than a smaller one. According to owners, people who like structure are best suited for a big organization – 47 percent agree with this, while only 9 percent believe such employees would be better suited for a small business. Again, anything can happen in a workday in a small business, so an employee has to be prepared to step out of their assigned role to do things they may not have expected or been prepared to do. There is less consensus about other traits: 61 percent of owners believe that a person with a high level of education could be suited for either small or big businesses; similarly, 57 percent believe that big company experience makes no difference in where a person should work.
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