Tuesday, August 22nd, 2017

Help businesses to hire one more employee

Posted: Monday, November 29, 2010

Last week, the Indiana Department of Workforce Development reported that Indiana’s unemployment rate had dropped to 9.9% in October. Even though this is an improvement over the 10.1% rate of the month before, there are still over 280,000 Hoosiers looking for work.

Instead of offering millions of dollars in venture capital to entice start–up companies to locate in our state or tax abatements to large employers to expand their business over the next several years, how about offering each small business an incentive to hire just one more person? There is nothing wrong with the strategies to attract or keep large employers, but perhaps we are overlooking the impact that small businesses can have.

Eighty-five percent of all businesses in Indiana have less than twenty employees

According to a recent article by IN Context, “Indiana’s Small Business Snapshot," in 2007, Indiana had 129,258 businesses with less than twenty employees. (This number excludes single person businesses (sole proprietors), who operate with no employees.) These small employers represented 85% of all businesses in Indiana and at that time employed 632,000 workers or 24% of the working population. In addition, based on a publication by the U.S. Small Business Administration’s Office of Advocacy, between 2005 and 2006, Indiana businesses with less than twenty employees, created 21,712 jobs or 36% of all jobs created that year.

What do these statistics indicate? To me, this means that, with the proper incentives, small businesses can make a significant dent in our unemployment rate!

Incentive to “Hire One More”

I own a small business. Bedel Financial Consulting has twelve employees, so my firm is in the “businesses with less than 20 employees” category. What is keeping businesses like mine from hiring another person? If the business is profitable, the unknown impact of income taxes, healthcare costs, and new regulations are quoted most often. Why take on the start-up costs and carrying costs of a new employee when there is a risk that future regulation and taxes will significantly drive up your costs of doing business? Is the risk worth taking even when another employee can be justified given the growth of the business?

My Suggestion: If you really want a small business to hire another person, offer a direct incentive to do so.

• Provide 50% of the first year salary of a new hire, up to $20,000. This means that if my firm hires a person with a $40,000 salary, the government provides a cash-back of $20,000. If the salary is only $30,000, the cash-back would be $15,000. If the salary is $60,000, only the maximum of $20,000 is paid back. Of course, the incentive could not be for simply creating a job, but for maintaining the position for at least one year.

Now there are lots of details to be considered in order for this incentive to work, but based on my unscientific survey, this is what would give the added incentive necessary to get a business owner to move forward with the next new hire.

Impact: Drop Unemployment Rate by 2%

If only 60,000 of the 130,000 businesses in Indiana took advantage of this incentive, 60,000 people would have a job in very short order. Of the 280,000 unemployed workers in Indiana, this would mean that 21% would get employed, dropping Indiana’s unemployment rate by well over 2%.

What would be the maximum cost of this “Hire One More” incentive? If each of the jobs paid $40,000 or more, the cost would be $1.2 billion dollars ($20,000 for 60,000 jobs). The price tag would be less if the average new salary or wage fell below $40,000.

However, on the economic development side, what is the impact of a minimum of $2.4 billion earned income? Income taxes, sales tax on consumer spending, reducing unemployment costs are very tangible benefits. I am sure this can be easily projected and measured by economic development analysts.

Summary

Because businesses with less than twenty employees are small, there is little individual attention given to this group. It’s a very diverse group of employers that provide important services to the community. Why not consider a way to help the small business owner hire one more employee? It may prove to be just as effective as competing to capture the next “big elephant” employer.