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Why is job growth so sluggish? Small businesses

Tracey Samuelson Jun 5, 2019
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In a tight labor market, small businesses are losing the battle.
Joe Raedle/Getty Images

Private-sector employers added fewer than 30,000 new jobs last month, according to payroll processor ADP. It’s a big drop from the 271,000 jobs they added last month.

One big reason for the weakness was small businesses. Firms with fewer than 19 employees actually saw a drop in employment. So what’s going on with the little guys?

Nick Giovanniello opened The Sandwich King in Long Island City, Queens, this past January. The deli serves up sandwiches, plus some hot foods and catering.

He has about five employees and he’d take another one or two — if he could find them.

“It’s hard to find good workers at a wage that is fair for both people,” he said.

Giovanniello starts new employees around $14 an hour.

“I mean, it’s hard to compete with somebody that’s offering $19, if you’re just a deli,” he said. “How do you put that into your payroll? How do you fit that into your budget? It’s impossible.”

In a tight labor market, where companies have to increasingly fight for workers, small businesses are losing the battle.

“Small businesses are at a distinct disadvantage relative to the big guys, because the big guys have lots of resources,” said Mark Zandi, chief economist of Moody’s Analytics, which puts together ADP’s payroll reports. “They can raise wages, they can provide other benefits and attract workers. Small companies just don’t have the ability to keep up and they’re not.”

The smaller the small business, the harder the hiring. Companies with more than 20 employees are out-competing those with fewer, said Jim Diffley of IHS Markit, which also tracks small business hiring.

“Size matters in terms of the ability to attract workers and the influence this tight labor market is having,” he said.

Diffley said in addition to higher wages and better benefits, workers may also prefer the stability of bigger companies.

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