Compare Hiring Pattern To Past Recession
Big Companies Snapping Up New Hires

By James E. Challenger, President
Challenger, Gray & Christmas, Inc.

After falling to a record low in the fourth quarter of 2003, small business hiring may be poised to rebound, but attracting the best candidates could be far more difficult than it was following the 1990-1991 recession.

That is the conclusion reached by Challenger, Gray & Christmas, Inc., researchers whose quarterly survey of jobless executives and managers shows that the number of job seekers hired by companies with 500 or fewer employees has fallen 25 percent since 1999.

What is so surprising is that we are more than two years into the recovery and small business hiring has continued to decline. This is a major reversal from the last recovery when small firms began adding workers almost immediately. Nearly 70 percent of unemployed executives and managers went to small companies between 1991 and 1994.

The latest Challenger survey of 3,000 discharged executives and managers reveals that among those winning new jobs in the fourth quarter, only 50 percent went to small companies -- the lowest percentage recorded since Challenger began its tracking in 1990.

In 1999, prior to the recession, the percentage of job seekers going to small employers averaged 67 percent. The annual average has declined each year since.

The good news is that the fourth quarter figure may represent the bottom of the trough. There have been several indications that small businesses are getting ready to add workers.

The National Federation of Independent Business reports that the net percentage of small firms planning to boost employment rose to 20 percent in December. The percentage of firms that said they have at least one hard-to-fill job also reached 20 percent last month.

However, small business owners may find that attracting experienced managers and executives is not as easy as it once was. During the dot.com boom, it seemed that everyone was leaving large employers for small entrepreneurial ventures, but things have changed.

After such a prolonged jobless recovery -- more than a year longer than the one our economy experienced after the 1991 recession -- many of the nation's unemployed simply want some job stability. Rightly or wrongly, they may conclude that small businesses cannot offer the level of job security they desire.

The other issue weighing heavily on their minds is the skyrocketing cost of health care. Job seekers are likely to have doubts about their chances of securing health benefits at smaller companies.

The fact is, 60 percent of the 43 million Americans with no health insurance are small business owners, their dependents or small business employees and dependents, according to the National Federation of Independent Business.

A survey of 600 companies by the Robert Wood Johnson Foundation found that 14 percent of small employers that currently offer health benefits said they would probably drop coverage entirely if faced with cost hikes in each of the next five years.

With health care costs rising about 15 percent each year, the likelihood is almost assured that more small firms will follow suit.

Large employers, even though they are also experiencing increased health care costs, are generally able to negotiate much better rates with insurance companies because they are buying in bulk.

During the hiring bonanza of the 1990s, it seemed that small business, particularly dot.com ventures, held all the cards. They were breaking new ground in terms of unique benefits, stock options and flexible scheduling. Now, it appears that large employers currently hold the advantage as a potential hiring surge approaches.

This poses a major threat to small business that if left with only second- or third-tier workers in terms of skill and experience, could find it difficult to compete for new customers and could have an increasingly difficult time holding the existing ones.

The looming labor shortages mean that small businesses must put themselves back into a position where they can attract the best candidates.

The best hope for small companies may lie with the growing population of Americans 55 and older -- a Baby Boomer and older population which is growing significantly and planning to spend many more years working than did previous generations.

Workers over 55 will represent the bulk of labor force growth between 2000 and 2010, according to projections from the Bureau of Labor Statistics. The number of people in the labor force age 55 and older is expected to increase by nearly 8.5 million workers. Meanwhile, the number of workers age 35 to 44 will fall by 3.8 million.

Employees 55 and older, due to their higher salaries, are often the first to get pushed out of larger companies focused on cutting costs and/or making room for younger, lower paid workers at the bottom of the corporate ladder.

Small businesses can take advantage of their availability and tap their experience and business acumen. An older worker may command a little higher salary, but the small company that hires him or her is likely to save money on costly training and realize greater profits because of the older employee's increased productivity, knowledge and commitment to customer service -- something that many complain is lacking among younger workers.

James E. Challenger, president of Challenger, Gray & Christmas, Inc., pioneered outplacement as an employer-paid benefit. His third book, The Challenger Guide, (Contemporary Books) is available in paperback.