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Hiring by Smallest Employers May Signal Job Recovery

Hiring by Smallest Employers May Signal Job Recovery

John Tozzie | Businessweek

While forecasters expect the Labor Dept. report due out Mar. 5 to show that the U.S. economy is still shedding jobs, data from payroll companies suggest that losses at the smallest businesses have stopped and those businesses are beginning to hire.

Companies with less than 20 employees have been tentatively adding new jobs since June 2009, according to a new index by Intuit (INTU) released Mar. 1, based on data from 50,000 customers of the software maker’s online payroll service. At the same time, a two-year slide in the average paycheck for workers at businesses with fewer than 100 employees has stabilized since December, according to data published Mar. 3 by SurePayroll. The average paycheck broadly reflects the number of hours employees worked. (Both Intuit and SurePayroll’s data include salary, hourly, and contract workers.)

Brian Headd, an economist in the Small Business Administration’s Office of Advocacy, says it’s “definitely possible” that small businesses are now adding workers, even as net job losses in the economy as a whole persist.In a paper released Mar. 3, Headd notes that companies with fewer than 20 employees began creating new jobs in the 2002 recovery even as larger businesses continued to lose jobs. Companies with fewer than 20 employees make up 89% of all employer businesses and employ 18% of the private workforce, according to the latest Census data, from 2006.

Tax Breaks as Incentives

Policymakers desperate to put people back to work are weighing tax credits to encourage companies to hire. The House passed a $13 billion plan Mar. 4 that would give employers who hire people out of work for at least 60 days a year off from paying the 6.2% Social Security payroll tax. John Bishop, a labor economist at Cornell University’s ILR School who co-authored a separate proposal for a hiring tax credit, says such temporary incentives succeeded in boosting employment in the late 1970s. Bishop calculates that a hiring tax credit could create more than 2 million jobs in a year. “It potentially has a huge effect, and small business would be the primary beneficiary of that,” he says.

Some small businesses don’t need incentives to hire. Michael McKean, CEO of Knowland Group in McLean, Va., has increased headcount from 38 to 48 since Jan. 1 and is trying to hire about six more staffers, including an in-house recruiter. The five-year-old company, with $6.2 million in revenue, makes sales, marketing, and lead generation products to help hotels land conferences and events. McKean, 40, says he thinks the hospitality industry—particularly business conferences—has hit bottom and is due to pick up. He also found a bank willing to increase Knowland’s credit line from $150,000 to $300,000, which he has sought since 2007. The company’s new hires will support new products and the opening of a Silicon Valley office in Sunnyvale, Calif.