Small-Business Hiring and Wages Slowed in 2005

Despite a boom in the Northeast, a new national payroll report shows only a modest gain in hiring and a drop in average employee salaries.
By Angus Loten

The nation’s small businesses appear to be shifting from recovery leaders to laggards, ending 2005 with flat growth and fewer new jobs, according to a new payroll data report. “It was a yawner of a year for small-business growth,” said Michael Alter, president of Skokie, IL-based payroll research firm SurePayroll. SurePayroll’s small-business scorecard for December, which surveyed some 15,000 small businesses nationwide, showed hiring at small businesses grew by just 0.3% in 2005, compared to 4.4% in 2004. The SurePayroll survey is conducted monthly.

By the end of December, the size of small businesses— gauged by the number of employees—had declined in every region except the Northeast, where hiring was up 10.4% on 17 straight months of increases.

About half of the scorecard’s 21 benchmark states reported declines, including significant decreases in Washington, Pennsylvania, and Texas.

The lower hiring rate means small businesses likely were not driving economic growth last year, which saw gross domestic product—the sum total of all goods and services in the U.S.— rise at an annual rate of 3.8%, Alter said. Meanwhile, despite an uptick last month, salaries at small businesses for the year were also down, by 0.5%, falling to an average of $29,126. The biggest drop came in Florida where average paychecks shrunk by 10.6% in 2005.

As jobs and average salaries fell, small businesses were increasingly competing with larger companies for good workers, the report showed. “Larger companies are doing well and are accordingly bidding up salaries in the hunt for talented workers,” Alter said. So as the pace of hiring is down, Alter said, small-business owners are facing higher prices for top-tier employees. “For the little guy, it’s getting harder and harder to compete with the big boys,” Alter said.

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