Why Small Business Won't Be Hiring

At the end of last year, business economists and government prognosticators alike had a growing list of reasons that small businesses weren't hiring. Chief among the causes were the continuing credit crunch and bleak prospects for future sales.

Even the improving numbers for new orders that looked optimistic at the surface had shadows of pessimism showing around the edges—many of the new sales were not so much "new" as they were restocking of inventories that had been purposely lowered for end-of-year tax reasons.

The results of the American Recovery and Reinvestment Act of 2009 have been either disappointing or abysmal, depending upon who you talk to. By in large, small businesses, which are the creators of half of all non-government jobs, haven't experienced the rising numbers depicted on the colorful bar graphs at Recovery.gov.

As the new year opened, the State of the Union Address promised a $5,000 tax credit for every net new employee in 2010. The goal, according to federal officials, was "to encourage businesses that are on the fence about hiring to take the plunge." The problem is that there aren't that many small businessmen who are on the fence. Most are standing firmly behind it and only peeking through the knotholes, waiting to see how the Senate will vote on part of that promise later this month.

More recently, reports of trillion dollar deficits and chatter of coming tax increases have made small entrepreneurs even more cautious. Those who are familiar with history and are wary of its repeating itself know that government spending has never brought private sector recovery.

Additionally, many employers are already operating with employees who have accepted fewer hours just to keep their jobs. Should the economy begin a recovery, the first new hires will be in line behind the part-timers who are waiting to get their full time status back.

In the end, the varied reasons that small businesses are not hiring—the lack of credit, the sluggish sales, the threats of future tax increases, and the surplus of hours for existing employees—are all attached to the same root: uncertainty in the economy. For most small businessmen, the risks of expanding are still too great.