Small firms slow down hiring

SMALL and mid-sized businesses, traditionally the engines for job growth in the United States, appear to be running low on fuel.

While revenues and profits are up, and business owners project higher earnings over the next 12 months, the number of new hires at small and mid-sized firms is not keeping pace.

This is the finding of a survey of 747 small and mid-sized businesses released last week by Arthur Andersen's Enterprise Group and National Small Business United (NSBU), a Washington-based association of more than 65,000 small-business owners.

In the coming year, owners of small and mid-sized companies say they expect revenues to increase an average of 6 percent; they foresee profits growing an average of 4 percent, according to the report. But only 29 percent say they expect to hire more employees, while 63 percent project that the number of employees will stay the same. Overall, small and medium-sized business will contribute an average of 2 percent to the total increase in the work force.

Small and mid-sized business are hiring fewer workers in part because they are using technology more efficiently - which in turn is increasing productivity - rather than relying on their laborers, says Ronald Cohen, president of NSBU.

Unfortunately, he adds, employers are reluctant to hire more workers because of government regulations. Business owners today are confronted with the responsibility of providing quality health-care coverage, rising labor costs, and increased taxes: Forty-two percent of small and mid-sized business owners cite health-care insurance benefits as one of the most significant challenges to the future growth and survival of their businesses. An equal number report regulatory burdens.

Other major issues confronting small and mid-sized business owners include federal taxes (35 percent), and labor costs - including salaries and benefits (35 percent).

``If you add those things all together,'' Mr. Cohen contends, ``it is tough to hire people these days because of the potential litigation that's involved because of the high permanent cost in unemployment compensation, workers' compensation, FICA [Federal Insurance Contributions Act], and now the threat of medical benefits.''

This leaves business owners with three options: to hire temporary workers, to incur expensive overtime and potentially overwork employees, or to outsource labor.

In the meantime, small and mid-sized business owners report that they are focusing on long-term strategies, such as improving operations, product and service quality, and productivity.

But for small and mid-sized companies, fewer workers mean less time to devote to developing new products and markets.

``The real long-term problem that we see with this [reduction in hiring] is that if you're so busy getting work out the door, and your people are working as much as they can, and you can't produce any more, then you're really not going to be devoting enough time to developing new markets and new products,'' Cohen says.

``And that, in the long-term, is going to hurt us,'' he adds.