Archive for June, 2010

Survey showing why job growth is slow: Businesses have to grow a lot to hire and they will only hire one new employee at a time.

June 21, 2010

How much do businesses have to grow to hire their next employee?

At a  meeting with some small business owners, I asked the following question:

“HOW MUCH DOES YOUR BUSINESS HAVE TO GROW TO HIRE ITS NEXT EMPLOYEE (35-40 hours/week)?”

Businesses were categorized into the following groupings for Business Size (Number of Employees): 1 to 4, 5 to 9, 10 to 19, 20 to 49, 50 to 99, or 100 or more employees.

Responses for required Business Growth to Hire Next Employee were categorized as follows: 5%, 10%, 25%, 50%, 75%, 100%, 200%, or more than 200%.

BUSINESS GROWTH REQUIRED TO HIRE NEXT EMPLOYEE

Below is a summary of the results:

SURVEY RESPONSES: 14

NO. OF SURVEYED BUSINESSES WITH ONLY 1 TO 4 EMPLOYEES: 10

MINIMUM GROWTH REQUIRED FOR HIRING NEXT EMPLOYEE:  25%

AVERAGE GROWTH REQUIRED FOR HIRING NEXT EMPLOYEE:  >70%

NO. OF BUSINESSES REQUIRING 100% OR MORE GROWTH FOR HIRING NEXT EMPLOYEE:  7

PERCENTAGE OF BUSINESSES REQUIRING 100% OR MORE GROWTH FOR HIRING NEXT EMPLOYEE:  50%

Even though the sample size (14) Is small, I believe that it is a fair representation of the local business community.  For half the businesses to indicate that they would need to grow 100% for more in order to hire their next employee suggests why job growth will be slow.

The results of my small survey seem to agree with the data in a BLS paper on Business Employment Dynamics.   The data is for business establishments that had employment gains from business starting up or expansion,  and employment loss from business contraction or closure during a yearly quarter (2Q 2008.)   The employment changes are divided into three groups: 1 to 4 jobs created or lost, 5-19 jobs, and 20 or more jobs.

“Business employment dynamics: tabulations by size of employment change”
http://www.bls.gov/opub/mlr/2009/04/art2full.pdf

The data shows that the vast majority of businesses added or lost only 1 to 4 jobs during the time period for that data. (Most businesses hire one employee at a time.)  In the report, 84% of businesses that either added or lost jobs changed employment levels by only 1 to 4 employees.  This is shown in Table 1 and Charts 3 & 4.

Chart 7 shows that the gross job gains & losses as a percent of employment for the decade of the 1990’s was greater than the following decade.  Chart 9 shows that the average job gain for establishments adding jobs, and the average jobs loss for establishments losing jobs also declined.  The report does not give reasons, but I suspect that moderation of job gains/losses relates to the loss of manufacturing. Production lines tend to add or lose large numbers of jobs at one time as the production schedule increases or decreases. As we have lost manufacturing plants, the average employer changes the size of the workforce less during any quarter.

CONCLUSION

It seems that jobs growth will be slow because businesses will have to experience significant growth to justify the expense and risk of hiring, and most  companies will hire only one new employee at a time.