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The Job Numbers Look Great For Everyone But Small Businesses

Small business job growth has slowed for the seventh consecutive month, according to one study. They are losing out to big firms when it comes to attracting workers, especially in a strong economy with tight labor market.

FILE photo shows Pam Ranson, recruiter for the Protocol Group Company, arranging her display table during the Recruitment Queen Job Fair at the Oxford Valley Mall in Langhorne.
FILE photo shows Pam Ranson, recruiter for the Protocol Group Company, arranging her display table during the Recruitment Queen Job Fair at the Oxford Valley Mall in Langhorne.Read moreJOSE F. MORENO / Staff Photographer

Most economists agree that last Friday’s job numbers were very, very strong. Unemployment remains at a historic low and businesses across the country and in this area added hundreds of thousands of new workers in December alone.

The reports were great economic news for just about everyone … except for those of us that employ more than half of the U.S. workforce: small businesses. In fact, two studies released this past week disclosed a different, more concerning job picture among these firms.

The Paychex | IHS Markit Small Business Employment Watch — a monthly report using data from more than 600,000 small- and medium-sized clients of the well-known payroll service provider — revealed a decline, yes a decline, in small-business job growth in December. And, that was the seventh consecutive monthly decrease of the year. A competing monthly indicator from professional services firm CBIZ, which tracks the hiring trends of thousands of companies that employ less than 300 people, also disclosed that small-business job growth flattened in December.

So why were the hiring numbers at small employers lagging, particularly when overall job growth across the country was so strong? The answer can be explained by simple supply and demand. There is a shortage of good workers nationwide due to the growing economy, and small businesses are losing in the competition for these workers to their larger counterparts.

“With the positives of a strong economic environment and the prospects for growth under tax reform, small employers were challenged throughout 2018 with job growth due to the difficulty of recruiting employees, given the historically low rates of unemployment,” Martin Mucci, Paychex president and CEO, said in a statement. (Paychex is a client of the Marks Group PC but I have received no compensation to write this article.)

Mucci’s comments are consistent with what I hear from my clients. Most of the business owners I speak to have unfilled positions and say that finding new employees is among their chief concerns heading into the new year.

So what can a small-business owner do? The answer is also simple: Pay more.

In its study, Paychex reports that wage growth among small businesses was a paltry 2.42 percent in December (2.49 percent in 2018), compared with a 3.2 percent rate nationally. The numbers in this area are even more grim. According to Paychex, Pennsylvania and New Jersey small employers increased wages this month by only 1.85 and 1.75 percent, respectively. In Philadelphia, the wages of employees working at small businesses increased by only 1.59 percent.

To my fellow small-business owners in the region and with peace and love: Those numbers are just not going to cut it. We have to increase wages more this year or we will continue to lose out on good people to bigger organizations.

Of course, this is not easy. And there are only three ways to go about it. We can try to pass our increased costs down to our customers by raising prices. We can look to cut expenses elsewhere or invest in technologies to help us do more things with the people we have. Or we can just absorb the increased costs and take home less profits.

But we have to increase wages. Otherwise, we’ll continue to be beaten by our larger competitors and potentially lose customers to organizations that are better equipped to handle the increased demands of a strong economy. This is not just a matter of growth. It could also be a matter of our long-term survival.

Gene Marks is a certified public accountant and the owner of the Marks Group, a 10-member technology and financial management consulting firm in Bala Cynwyd.