Here’s my general feeling about new hiring these days. No way, José. The choice for my 30 employee firm, Corporate Rain International, is to not hire now unless we absolutely have to.
Why? For me and most of my small business colleagues, clients, and friends, the present Great Recession is a stunning entrepreneurial ambush. It’s a flabbergasting rule changer and assumption challenger. However, the conventional wisdom is that we’ve now turned a corner and that the entrepreneurial class is and should be beginning to make new hires. As I mentioned on May 18 (Chicken Little and Entrepreneurship), I remain less that sanguine about a robust recovery, with it’s concomitant implications for a hiring ramp-up.
The news is technically positive. The Wall Street Journal reported on June 4 that unemployment is down to 9.7%. Payroll giant ADP reports private sector jobs increased 55,000 last month and the number of claims for unemployment went down by 10,000. Ford and GM are rehiring some autoworkers. Payrolls climbed 431,000 and pending home sales rose 6%. White House Head Economist Christina Romer spoke on Friday of “continuing signs of labor market recovery.” But before popping the recovery champagne, I have some very cautionary thoughts.
No one likes bad news. But beneath the patina of good news mentioned above (and emphasized in government press releases) there are lots of corrosive caveats. The first of these is purely factual. How much of this employment news is really true?
John Crudele of the NY Post has been on an editorial jihad about the undependable and illusory nature of governmental employment figures for some time, pointing out that much of what is accepted as factual truth about employment, new company formation, and economic activity is really hypothetical, and often quite optimistic, guesswork. In his column of June 3, titled, “Census Workers Share Their Horror Stories”, he shares anecdotal evidence that, among other things, the Census office hiring figures may be inflated. He states, “A couple of weeks ago I found out that Census was repeatedly hiring and firing workers without any apparent reason. I questioned if this was being done to artificially boost the nation’s employment figures since the Labor Department considers it a new job created whenever someone is hired to work as little as one hour in a month. Was Census churning jobs to make the economy look healthier than it really is?” Good question, John.
But even assuming governmental figures for employment were not disingenuous, 411,000 of the recent new payroll jobs were indeed with the Census Bureau, creating very short-term governmental employment. After predictions of a 200,000 gain in private sector jobs last month, the actual figure was 41,000. That’s not good. Despite lots of governmental cheer leading and happy talk, the private sector is just not coming back.
Pardon my pessimism, friends, but I feel more strongly than ever that small business is the canary in the coal mine that presages nothing good for the US economy. President Obama seems genuinely bemused as to why we small businessmen refuse to start hiring. Hasn’t he stimulated the economy out the wazoo? Yes. Probably excessively so. But little of this largesse has been directed toward the entrepreneur.
No less than Bill Gross of PIMCO, being interviewed on Bloomberg Radio (8:45 AM-June 4), stated job growth in the private sector is moribund, and that without temporary governmental stimulus unemployment would be over 11%. Even überliberal Robert Reich wrote a cautionary op-ed in The New York Times on Wednesday, June 2 titled “Entrepreneur or Unemployed?” which challenges optimistic assumptions about supposed increased entrepreneurial activity. Reich asks, “So why all this entrepreneurship last year?…In a word [it’s actually] unemployment. Booted off company payrolls, millions of Americans had no choice but to try selling themselves. Another term for ‘entrepreneur’ is ‘self-employed.” Reich reports that layoffs have surged while hiring has almost disappeared. And these are permanent job losses, replaced by labor-saving technologies, outsourcing or contract labor. He predicts a 50% likelihood we will slip back into recession.
In addition to our current entrepreneurial conundrums, there are growing long-term disincentives that militate against small business hiring.
- The major disincentive is potential large costs of tax and bureaucracy associated with the new health care legislation. But, even worse, is the uncertainty this cryptic 2,000 page monstrosity has created. What the hell is really in it? I sure don’t know. I don’t think even the people in our government know. It’s bloody scary for a businessman.
- Second, how does private business hope to compete for employees with the increasingly bloated salaries of public sector workers? Westchester County Association executive Amy Allen, in the June issue of Westchester magazine, points out that the average public sector salary in my region of New York is about 6% above the average salary in the private sector. And this is before figuring in large pensions and health care for life. According to the Cato Institute, the average federal civilian salary with benefits is $119,982 compared with $59,909 for the average private sector worker. Wow.
- Third, states like New York are near bankruptcy. To solve their financial conundrum I predict these states will fall on small business with more taxes and more red tape–like lions on a lamb. Small business is vulnerable and weak compared to big business and public sector unions. I sure hope and pray I’m wrong on this one.
My cri du coeur is that the small business issue be addressed more insistently, more forcefully by the press and media, as well as government. Pay attention to us! All is not well out here in little business land. It would be utter imprudent madness for most of us to hire and rehire employees in the present environment.
Hire more workers? Hell no.