Commentary

Slumping Small Business Hiring: Obama's Fault?


President Barack Obama addresses an October campaign rally at the Cleveland Burke Lakefront Airport in Cleveland, Ohio

Photograph by Chip Somodevilla/Getty Images

President Barack Obama addresses an October campaign rally at the Cleveland Burke Lakefront Airport in Cleveland, Ohio

During the campaign, the Obama administration has repeatedly said that the president has helped small business owners boost hiring. Among its claims of having done so: lowering “taxes for small businesses 18 times,” putting in place “numerous measures to help more small businesses access the credit they need,” and eliminating “pages of burdensome forms and regulations.”

As we head into the final days of the presidential campaign, I’ve taken a look at how small business employment has fared over the Obama presidency, and it doesn’t jibe with the administration’s story.

It’s true that the president inherited a mess. Small business employment was falling before he took over a nation that was suffering through the Great Recession. But his policies couldn’t have helped small business owners boost hiring because their employment remains mired at recessionary levels, the Intuit Small Business Employment Index reveals.

The measure estimates employment at independent companies that use Intuit’s online payroll product and have fewer than 20 employees. Companies with no more than 19 workers make up nearly 90 percent private employers in the U.S. The U.S. Bureau of Labor Statistics provides similar estimates for companies in that size range, but they are delayed by around a year, so the Intuit Index fills an important data gap.

Companies with fewer than 20 employees have actually shed jobs during the economic recovery: The Intuit Small Business Employment Index was 0.9 percent lower in October 2012 than in July 2009. Moreover, since May, the index has moved in the opposite direction from BLS estimates of overall employment, with Intuit reporting a loss of 10,000 small business jobs in each of the last two months.

The Intuit index provides no evidence that small businesses are hiring more people now than at the beginning of the President’s tenure. While the precipitous decline in the hiring rate during the Great Recession has slowed, it is currently 7.2 percent below what it was at the time of the president’s inauguration, Intuit’s figures show.

Compensation and hours are similarly weak. Adjusting for inflation and seasonality, monthly compensation for all employees (including the owners) at businesses with fewer than 20 employees is 10.2 percent lower than when the president took office. Employees worked 5.5 percent fewer hours this October than they did in January 2009, and real seasonally adjusted wages are down 5.3 percent.

Republican politicians and right-leaning advocacy groups that include the National Federation of Independent Business and the Small Business & Entrepreneurship Council blame the president’s policies for the sorry state of the small business sector. SBE Council president Karen Kerrigan and William Dunkelberg, chief economist at the NFIB, both argue that the Affordable Care Act, a rising regulatory burden, and the threat of higher taxes have made small business owners pessimistic and unwilling to hire.

But the forces holding back the small business sector aren’t all under the president’s control, says Susan Woodward, an economist at Sand Hill Econometrics who helped develop the Intuit index. Small business employment, she argues in a press release, has suffered from the persistent weakness in the construction sector, historically a major source of small business employment.

Moreover, the 60-year trend toward less small business employment—which tends to accelerate during economic downturns—has played a role in the weak hiring rates and declining pay at small companies, Woodward explains.

While it’s clear that President Obama isn’t solely responsible for the poor performance of the small business sector over the past four years, his administration shouldn’t be claiming he has helped to boost small business hiring. If the administration’s policies were truly helping, then Intuit’s numbers would reveal a much healthier small business sector than they do.

Scott_shane
Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

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