While the Department of Labor has reported job increases over the past three months, businesses with fewer than 20 employees have lost jobs each of those same months according to the ADP National Employment Report. A total of 105,000 jobs have been shed by these small businesses in May (-50,000), June (-37,000) and July (-18,000).
In addition to job losses, small business startups are near a 40-year low.
Should we be concerned that very small businesses are losing jobs and not being created?
These very small businesses make up about 67 percent of all our nation’s businesses. Small businesses with fewer than 100 employees account for one third of all workers, according to the Small Business Administration.
Most net new jobs come from small businesses less than five years of age and having four or fewer employees.
Small businesses led us out of the recent Great Recession by delivering far higher numbers in job growth compared to big businesses with 500 or more workers. A healthy small business economy will do the same when the country inevitably slides into another recession.
So, what are the causes of this ailing small business sector of our economy?
Most important to small business creation and growth is consumer demand for goods and services. When customers, individuals and other businesses start pulling back their spending, all businesses feel the pain. But small businesses feel it first and hurt more because they have fewer resources to ride it out.
Unemployment might be very low, but wages have stagnated. Most American families are struggling with the cost of health care, tuition loans, housing, transportation and childcare. Consumers are trying to maintain their standard of living by racking up $4 trillion in consumer credit debt, the highest it has ever been.
Credit cards do help small businesses sell their goods and services. However, with the cost of consumer goods being driven up by tariffs, even discretionary spending in the form of plastic doesn’t buy as much from small businesses, which might also be cutting back on profit to keep prices down.
The public, as well as Wall Street, is very concerned about a global economic slowdown and what that would mean for employment. A consumer in fear of losing a job is going to pull back on spending in their communities.
That is what small business owners might be feeling. In response, small business owners would be reluctant to replace a worker who has moved on or might have to let an employee go.
Entrepreneurs sense a changing economy, with the result being a headwind against launching a new startup.
Certainly, the country has been through these times before, but we might not be as prepared to fight a recession this time if small businesses can’t lift us up as quickly.
That is why we should be concerned about the small business jobs and startups issues.
If August data shows a strong rebound in hiring by very small businesses, we might have more time to address this serious problem.
But if the job loss continues, action is needed quickly. It cannot wait until 2021.
Congress passed tax reform in only a couple months in late 2017. While that tax law gave big tax cuts to corporations and the wealthy, it didn’t do anything to put more money on Main Street or help small business owners, according to polling by Businesses for Responsible Tax Reform.
We can start by rolling back those tax cuts that neither paid for themselves nor spurred local economies.
Then Congress should reallocate much of the money to lowering health care, tuition and childcare costs. Funds can be invested in roads, bridges, energy and small businesses, such as making the first $25,000 in small business profit tax-free or doubling the business startup tax deduction.
Our nation’s very small businesses are letting us know that our economy is heading in the wrong direction. Congress needs to start listening.
Frank Knapp Jr. is the co-chair of Businesses for Responsible Tax Reform and president/CEO of the South Carolina Small Business Chamber of Commerce.
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