The odds are, 1999 will keep entrepreneurs under the gun in one key area -- hiring. The regenerating U.S. economy sopped up 378,000 more workers in December, surpassing expectations and bringing the unemployment rate down one-tenth of a percentage point, to 4.3% for the month. The full-year 1998 jobless rate was 4.5%, down from 4.9% in 1997, reveals the Labor Dept. in its closely watched nonfarm payrolls report.

Who's hiring? Small business is a big factor, says Irwin Kellner, an economics professor at Hofstra University in Hempstead, N.Y., and a former chief economist at Chemical Bank. "As quickly as big companies are thinning staffs, small businesses are picking them up," he says.

Difficulty finding good help is a persistent complaint in recent surveys of entrepreneurs: The latest National Federation of Independent Business report found 30% of small businesses polled have hard-to-fill job openings, amid the U.S.'s longest peacetime economic expansion. Of the 557 small-business owners the NFIB surveyed in late December, a net 20% plan to add workers in the first half of 1999, up from a net 17% in November. (The net figure subtracts those who plan to cut staff from those who are adding.) "Our guys are hiring like fiends," says William Dunkelberg, the NFIB's chief economist.

The Labor Dept. figures contain some distortions, says economist Selig Sechzer, senior vice-president for Alliance Capital Management. But he says the bottom line in the jobs growth data is "the U.S. economy is very dynamic and is in the process of reinventing itself."

DEVASTATION? John Challenger, chief executive of Challenger, Gray & Christmas Inc., an outplacement firm in Chicago, says a relatively high number of layoffs announced in December were outweighed by jobs created by small companies. He added that the retrenchment headlines give the impression that a flood of people will hit the market, but they're usually let go over a year or more.

His comments downplay a recent Challenger, Gray study dramatizing 1998 layoff figures as "the most devastating job-cut year of the decade," reflecting, among other things, high merger-and-acquisition activity.

Even high layoffs aren't likely to send as many castoffs to small companies as they'd like, Challenger suggests. Why? When they lay off, large companies redirect resources into other areas and sop up suitable workers. "We're into a just-in-time marketplace," explains Challenger. "Companies show no hesitation to let people go in areas where they're losing market share. But they're much more nimble. They move resources into areas where they're making money."

On the bright side -- from an employer's point of view, anyway -- a 3.8% rise year-on-year in December in adjusted hourly wages shows labor is still pretty meek about demanding higher pay, considering how much small companies want them. That's because "our labor force is competing with foreign workers," says Alliance Capital's Sechzer. "They understand the process whereby their jobs can be exported. Global competition is disciplining workers and management."

Another brake on runaway wages is Federal Reserve Chairman Alan Greenspan, known for keeping a close eye on employment costs. "This rate of job growth would become inflationary over time and would have to be addressed by the Fed," says Sechzer. "A month or two ago, the prospects looked good for continued rate reductions. The impact of last month's data flow is to delay any easing." The upshot: Keep your hiring plans on hold, and borrow what you can.

By Julia Lichtblau in New York
julia_lichtblau@businessweek.com

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