Small businesses struggle amid increasing unemployment

Economists say a major reason for the jump in the U.S. unemployment rate in October is that small businesses are still cutting jobs and struggling more than larger companies, according to USA Today.

Nineteen percent of small-business owners cut jobs by a seasonally adjusted average of 4.2 workers per firm during the third quarter. Only 8 percent increased employment by an average 3.5 workers per firm.

Although the Department of Labor’s payroll survey showed employers shed 190,000 jobs in October—down from an average 357,000 from May through July—the payroll survey is skewed toward larger companies, says Mark Zandi of Moody's

Businesses with fewer than 20 employees account for 25 percent of all jobs but generated 40 percent of job growth during the last recovery. However, during this economic crisis, small businesses have been struggling with various factors.

For example, it has been difficult for small businesses to secure credit because they don't have "bricks-and-mortar" assets that serve as collateral.

Additionally, small businesses are less likely to export their products and, as a result, are not benefiting from the beginning of recovery overseas.

Small businesses also are worried about health care costs. They are concerned their costs are rising more sharply than those of large companies and are facing uncertainty regarding health care reform.

"Small business tends to lead the way out, and that's just not happening here," Zandi says.

Date : 11/12/2009