Jobs and Small Businesses: 3 Tips to Improve the Economic Landscape

The American economy desperately needs more jobs. About 7 million Americans have been out of work for 6 months or more, and while an American Express survey of small business owners this past spring found that 28 percent have plans to hire in the near future (versus 23 percent in fall of 2009), the majority of these businesses are planning to add part-time or contract help. Only 5 percent of business owners plan to add full-time staff.

Everyone wants this number to be higher. But what, exactly, leads a business owner to create a full-time job? And most importantly, with 5 people out of work for every open position, what would make it easier for them to create more?

Nothing gets an entrepreneur in a hiring mood like brisk demand, or “more money and more sales,” says Linda Russell. She owns California-based MugsyClicks, a school photography company that matches independent photographers with school districts and provides fulfillment and billing support. With business tripling since 2006, she’s converted two contractors into full-time staffers, with benefits, since 2009. There is no substitute for growth. But after talking with her and other small business owners who’ve created jobs in the past year, when it comes to hiring, policymakers can do a few things to make a difference on the margins:

1. Keep credit available. Adding staff is a long-term commitment that’s easier when you don’t have to fret about cash flow every month. That’s particularly true in a seasonal business like school photography. Russell credits a $300,000 10-year Small Business Administration loan, landed in May of 2009, with making the decision to expand easier. “It was a game changer for us,” she said. With access to capital, she could suddenly make “decisions based on merit, not desperation.”

The Obama administration has done a good job streamlining the application process for SBA-backed loans and raising the loan caps. But not all its dealings in credit are so smart. The SEC has spent the past two years battling Prosper, a peer-to-peer lending service, which specializes in very small ($25,000) loans. The disagreement stems from how alternative loan providers should be regulated, but the result of this expensive fight — Prosper has legal bills of $1 million or more — is that few other organizations are going to enter the micro-credit space in the near future. This squelching of innovation is a loss for small businesses looking for multiple sources of capital.  

2.  Re-examine policies that add to hiring costs. Angela Jia Kim’s Om Aroma line of organic skincare products grew from just her and a part-time assistant to five full-time employees when she opened a retail store in New York City in May. “I had to have the manpower” to staff the store, she explains. But she soon found out that “there are so many hidden charges that make it so difficult on a young business.” New York State immediately required her to pay workers compensation and disability insurance premiums for all her new hires (other states have their own fees). It was a $2,000 bill that hit just as all her other bills from opening a store were hitting, too. “I’m not against paying taxes,” she says, and $2,000 isn’t much in the grand scheme of things. But with politicians talking about the need to create jobs, it would be nice to be “rewarded for helping the economy grow,” possibly with a tax credit to counter these costs for the first year or two of a job’s existence. While the Small Business Jobs act would increase the deduction businesses can take for start-up expenses, the premiums are costs that Kim is building into her decision about when she’ll open a second retail outlet, and how many jobs she’ll add.

3. Get health insurance costs under control. Patty Hong co-founded Plumsea Law Group in 2003 to do patent prosecution. She now has 26 employees in her Bethesda, Md. and Portland, Ore. offices, including two who started in the past month. But because the firm’s health insurance premiums are so high (running about $800 per employee, per month), “we often start people part time before we’re ready to offer the benefit,” says Hong. That way Plumsea can evaluate the new hire before forking over the cash for a policy. More affordable policies would “drive us to hire full-time people more readily.” Unfortunately, no one is really sure whether the recent health care reform will make policies more affordable – or more expensive.

Many business owners really would like to create more jobs. “If I can put resources toward people, I do,” says Russell. Asking whether policies make life easier or harder for people like her is a good first step toward lowering the unemployment rate and getting Americans back to work.