Small business hiring big reason for drop in unemployment rate

labor market

Small businesses, which have been bearing the lion's share of job creation in the economic recovery, are picking up the pace. Image: CC Nonsequiterlass/Flickr

Small business hiring has markedly increased in the past three months. The turnaround in small businesses hiring, which creates a majority of U.S. jobs, is seen as a possible turning point for the weak labor market. While hiring in large companies has been relatively flat, a three-month surge in small business hiring is being credited for lowering the U.S. unemployment rate nearly an entire percentage point.

Small business hiring statistics

Hiring at companies with less than 50 employees has been increasing over the past 12 months. From December through February, small business hiring has increased by more than 100,000 jobs per month. In that time period, the U.S. unemployment rate has dropped from 9.8 percent in November to 8.9 percent in February, according to the Department of Labor Statistics. Of the 217,000 jobs created in the U.S. in February, 46 percent of the hires were by small businesses. Payrolls at large companies have only grown by about 10,000 in each of the past three months, just 5 percent of the total jobs created for an employment sector that accounts for 16 percent of non-government jobs.

A turning point in the labor market?

Small business hiring has been increasing, but it still has a long way to go to fix the devastation wrought by the recession. Between April 2008 and February 2010, the small business sector cut 2.7 million jobs. Until December, small business hiring was lackluster. In the past year, 607,000 jobs have been created by small businesses. But the recent surge has analysts optimistic that the trend will continue. Over the past five months, employers have consistently reported that they plan on hiring more employees, according to the National Independent Business Association. A turning point in labor demand was also indicated by a survey conducted by Discover Financial Services, which reported that 11 percent of small businesses planned to hire in February, up from 6 percent in August. Only 20 percent of businesses in the survey planned layoffs, down from 20 percent in August.

Offsetting public sector layoffs

The labor market has improved so slowly up until now because the U.S. economy actually generates greater output currently than it did in 2007, before 7.2 million jobs were lost. The surge in productivity has lessened the need to hire more workers. Small business owners appear to be more confident, but despite the recent significant gains, small business hiring will have to pick up the pace if government budget cuts trigger massive layoffs at the federal and state level. A survey conducted by outplacement firm Challenger, Gray & Christmas found that planned layoffs increased by 32 percent from January to February, largely because of job losses in state and local governments and the U.S. Postal Service.




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