Job creation is a complex and has a is a multifaceted process that depends on largely on definitions. Most government officials extol the idea that small business generates almost all of the jobs in this country. By their definition that is true. By government standards, any business with less than 500 employees is considered a small business. Unfortunately by this definition 99.7 percent of all businesses fall into this category. A more reasonable definition for small business would any business that has less than 50 employees. By this definition small business would definitely generate a much smaller percentage of the overall job creation. Medium and large firms would most certainly be given their share of the job creation pie as well.
As we recover from the Great Recession, many of the jobs are slowly being recreated. But many of those jobs lost were from the public sector. Governments from federal to state and local agencies trimmed their payrolls as revenues fell and borrowing became increasing difficult. These employees sought jobs in the private sector which was also cutting jobs. Statistics have shown that the truly small businesses such as the mom and pop businesses with just a few employees rarely create jobs that pay well nor do they add jobs on a large scale. Many of these small businesses are unable to offer employees benefits such as paid health care, time off, etc. To make matters worse many of these jobs are part time and do not qualify for many of the benefits full time employees are entitled.
So what does it take for businesses to add to their payroll and perhaps add jobs that pay well? Obviously the business must be a start up, expanding or gearing up for expansion. Most of economists would agree that expansion requires capital. The capital can be either generated from within through sales, stock IPO’s and other financial instruments such as bonds or borrowed outright. The Federal Reserve has kept the lid on capital borrowing costs by keeping interest rates at extremely low rates for an extended period of time. But it does require more than just cheap capital to expand. The business has to see the profit potential, the long term outlook and the overall costs for the expansion. Sales generally need to increasing and hopefully gathering a greater part of the market share. But there is a catch 22 at work here. Most businesses must justify expansion and see sales increasing but as jobs are lost, the market for sales also weakens as the amount of disposable income is reduced. This spiral downward is difficult to break but not impossible.
What can the government do to help business, small and large generate jobs? An obvious answer might be to give tax incentives for firms creating new jobs. Governments as a whole do tend to spend more and lose revenue when the economy downturns. Part of this is due to the support from unemployment benefits that must be paid out to ever increasing numbers of laid off workers. Tax incentives would tend to favor start up businesses as they add the most new jobs to the economy. Unfortunately a large percentage of these jobs do not last more than five years as the companies creating them generally fail within that time frame. Removing regulations could also potentially help, but only to a point. Government could also subsidize smaller industries and protect them from foreign competition until they can stand on their own through growth and increased market share. One area that may be potentially considered controversial would be to create work programs such as those back during the Great Depression. Large public works were created by FDR in an effort to bolster employment, and get the economy going again.
It is no secret that the U. S. is in dire need of public works projects to replace or repair existing infrastructure such as bridges, roads, and tunnels. This option would likely be seen as a Keynesian approach to the problem, and most would say the government already spends too much with an out of control debt problem. This is not to suggest a program of this sort would improve the whole economy but would be at least part of the solution. The government alone cannot solve the job creation problem, but with teaming together with private industry and forging alliances with the special interests groups public works can go along way toward solving the problem.
Opinion By K. Allen Hinshaw