The phenomenal productivity gains of recent years have allowed many companies to grow without hiring new employees. The resulting surge in corporate profitability has benefited both the equity markets and the economy as a whole.
Big companies obviously have the opportunity to make use of capital improvements and lower-cost labor, leading to productivity gains. But the Wells Fargo/Gallup Small Business Index survey for the first quarter of 2004* provides some new insight into whether small businesses have also enjoyed productivity gains, and what small businesses can do to increase their productivity.
Small Business Productivity Gains
Most small business owners have taken some steps in the past year to improve productivity. The most frequently reported actions involve buying new computers and making other capital investments. In addition, hiring part-time employees instead of full-time workers is a strategy used by a substantial number of small businesses.
The Small Business Index survey shows that 60% of small business owners have updated their computers in the past year, and 52% have made other capital investments. Thirty-seven percent of owners have hired part-time instead of full-time workers, and 24% have not replaced workers who have left voluntarily. Fifteen percent say they have laid off workers, and 10% report cutting salaries.
New Hiring
A significant percentage of small businesses, like their larger corporate counterparts, have been able to increase their productivity over the past 12 months -- 43% of small business owners report that their productivity has increased, while another 43% say it has remained the same and just 13% say it has decreased. As part of this process, small business owners have also reduced their number of employees and made more use of part-time employees.
At some point, small business owners will no longer be able to substitute productivity gains for labor and will have to start hiring again. When will that hiring take place? Thirty-nine percent of small business owners say that a significant increase in sales would definitely spur them to hire new employees. Another 34% say a major backlog in orders would definitely prompt such a move.
Bottom Line
Increasing productivity is not limited to large corporations. In fact, increased productivity has allowed small businesses to remain healthy and competitive during recent years. While this increased productivity has resulted in fewer jobs than past increases, hopefully it will lead to more jobs in the future, since small businesses are well positioned to take advantage of the economic expansion now underway.
*Results for the total dataset are based on telephone interviews with 592 small business owners, conducted March 1-14, 2004. For results based on the total sample of small business owners, one can say with 95% confidence that the margin of sampling error is ±4 percentage points.
