Most Small Businesses Create Fewer Than One New Job a Year, Study Finds
January 18 2017 - 06:29AM
Dow Jones News
By Ruth Simon
Employment growth is slow and unsteady at most small firms, with
the median small business adding fewer than one full-time position
a year, despite the sector's reputation as the engine of U.S. job
growth.
About 16% of small firms lost the equivalent of one full-time
employee and just 20% added more than two full-time positions,
according a new study by the J.P. Morgan Chase & Co. Institute,
which analyzed 2015 payroll records for more than 45,000 small
firms that are bank customers.
The study highlights the continuing economic challenges facing
many small businesses. Most small firms employ just a few workers
and struggle with unpredictable results. The lion's share of
small-business job gains in the U.S. comes from new businesses
being formed, rather than the expansion of older small firms.
"There is a great disconnect between the belief that
entrepreneurship in general is a driver of economic growth and
prosperity, and the simple fact that most small businesses remain
small," said Scott Stern, a professor at the Massachusetts
Institute of Technology who studies entrepreneurship.
Cynthia Heathcoe, the owner of Contemporary Living, tried twice
over the past two years to bring on another full-time employee for
her Palm Beach Gardens, Fla., furniture showroom. Both times Ms.
Heathcoe let the new employee go within a few months because, she
said, the arrangement wasn't cost effective.
With her business growing, Ms. Heathcoe hired another new
employee in December, but only after she redefined the job
description to focus on administrative tasks, not sales. "I didn't
need another salesperson, but I thought I did."
Eighty-nine percent of businesses with paid employees -- or more
than 4.85 million firms -- had fewer than 20 employees, according
to 2014 U.S. Census data. These firms account for 17% of workers at
companies with employees.
The J.P. Morgan study examined electronic payroll records for
firms that had combined balances in checking, savings and other
accounts at the bank totaling less than $20 million. The study
focused on the period from February to October 2015 in an effort to
factor out the biggest seasonal variations.
Employment and payroll spending proved to be "very unstable,"
particularly for young firms, said Diana Farrell, chief executive
of the J.P. Morgan Chase Institute, the bank's internal think tank.
"The reality of it is that most small businesses do not have a
steady flow of customers and a steady flow of revenue. They have
goods months and bad months."
Eric & Christopher LLC, a maker of silk-screened pillows and
totes in Perkasie, Pa., has a staff of 11. To meet spikes in
demand, it calls on six seasonal employees who typically work from
September through November and when the firm receives a big order,
as happened in January.
"The last thing I want to do is promise them a job today and
then let them go," said co-owner Christopher Kline, noting that a
firm of his size can't afford the luxury of keeping extra workers
on staff.
Some of the variability reflects the dynamic, messy process of
creating a new company, said Arnobio Morelix, a senior research
analyst at the Ewing Marion Kauffman Foundation. The J.P. Morgan
data suggest that, because small firms tend to have small cash
cushions, they are more likely than big companies to adjust hours
or head count to meet the ebbs and flows of demand, he added.
Adam Rhodes and his partner, Kevin Atkinson, started Homestead
Beer Co. as a sideline in 2012. Two years later, the pair quit
their jobs and hired their first two employees. The Heath, Ohio,
microbrewery now has 11 full-time and three part-time
employees.
"There were a handful of positions we thought were going to be
part-time, but the person wound up coming on full-time because the
business kept growing," said Mr. Rhodes, who hopes to bring on as
many as six more staff in 2017.
Write to Ruth Simon at ruth.simon@wsj.com
(END) Dow Jones Newswires
January 18, 2017 06:14 ET (11:14 GMT)
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