To boost job creation in small businesses, help them help workers
More government support for small businesses? It’s what some members of Congress would like — and what so many small businesses across the country need, according to our recent survey.
This additional federal funding would be on top of the nearly $1 trillion the federal government has provided to small businesses over the past two years under the Paycheck Protection Program (PPP) and enlargement Economic Disaster Loan (EIDL). According to the Small Business Administration, 90 percent of the total value of PPP loans has been canceled – just over $700 billion in aid. This federal relief was a crucial lifeline for millions of small businesses.
For the most part, however, the effects of the pandemic continue to weigh on recovery and growth efforts. As one small business owner told us, “Small businesses are far from out of the woods.”
One of the biggest challenges they face right now is finding and keeping workers. A recent report from the Bipartisan Policy Center, produced in conjunction with Goldman Sachs 10,000 Small Businesses Voices, examines this and other key small business challenges. It presents options for policy makers on how to address them. If Congress and the Biden administration want to provide more support for small businesses, they should focus on the most acute challenges.
Right now, finding workers is at the top of the list.
In January, a national survey of Small Business Owners by Goldman Sachs 10,000 Small Business Voices found that 87% of those who were hiring struggled to recruit qualified employees. Of those having difficulty hiring, almost all (97%) said it affected their bottom line. This represented a jump of 17 points in just a few months.
These findings are confirmed by the Census Bureau Small Business Pulse Survey. As of August, 40% of small businesses consistently cited “identifying and hiring new employees” as their top need.
Hiring is just one step. Small businesses need to be on the radar of potential employees. They must put together an attractive job package that includes benefits. And, once hired, they need to be able to retain them (if it works, of course). At each of these points, small businesses often struggle to compete with larger companies.
“I can’t financially afford to compete with the starting salaries and benefits that big companies can offer,” said one small business owner. It’s an ongoing challenge, but it’s gotten worse today.
Small businesses know how to compete for talent. They know that retirement plans and training opportunities can be as attractive to potential employees as the salary – and they want to reward their employees for their efforts. To do this, they need more and better support.
Additional support from policymakers could certainly come in the form of increased financial assistance, but there are other effective ways to help small business owners as well. In our report, we identify actions that policymakers can take to help address small business hiring challenges.
First, Congress should consider renewing the employee retention credit. Credit, created in response to COVID-19, was popular but underutilized. This was partly due to restrictions surrounding its use with PPP loans. But it was also due to administrative complexity and uncertainty. Many small businesses had received an early payment or were planning to claim the credit for Q4 2021. Yet the credit was closed early, in September.
Two bipartisan bills have been introduced to extend the credit through the end of 2021. Lawmakers should also consider a new incentive, either a renewed employee retention credit or something similar aimed at small businesses.
Second, Congress should consider ways to improve the ability of small businesses to provide benefits such as pension plans. Fair 52 percent of employees in the smallest companies (those with less than 50 employees) have access to a pension plan through their employer. This is not for lack of will on the part of entrepreneurs. Respondents to the national 10,000 Small Businesses Voices survey say pension plans are often too expensive and administratively burdensome.
Our report offers many other ideas for policy makers to consider. Tackling today’s biggest small business problem – hiring and retention – is a good place to start.
Joe Wall is Managing Director of Goldman Sachs 10,000 Small Businesses Voices. Dane Stangler is Director of Strategic Initiatives at the Bipartisan Policy Center.