Entries for July 2008

How would you spend $7,647? That's how much the average business in this country with under 20 employees loses a year for each of its employees because of federal regulations. Thomas Sullivan, the chief counsel for advocacy at the Small Business Administration, testified yesterday before the House Committee on Small Business about ways his office is trying to reduce the $1.1 trillion burden that federal regulations place on businesses. Sullivan also noted that this burden falls disproportionately on smaller businesses. In 2004, the cost of regulations for businesses with more than 500 employees was $5,282 per employee.

The gist of what Sullivan said is that the SBA Office of Advocacy is singling out some of the "low-hanging fruit" regulations to be revised, but it's going to be a slow process, as can be expected of any bureaucracy. Last summer, the SBA launched its Small Business Regulatory Review and Reform Initiative, which each year will come up with a "top 10" list of regulations to be addressed. Sullivan's testimony includes the list of this year's top 10, which contains some nuggets like this:

The early word on July jobs reports has been pretty bad. But according to a report released by ADP today, the small-business sector continues to be a silver lining in the dark cloud of the overall employment picture.

The picture does seem to be much better than was forecast, fortunately. The ADP National Employment Report finds total nonfarm employment grew by 9,000 from June to July. But that number doesn't tell the whole story—that growth was driven by small-business job growth, which masked problems at larger businesses. July saw "essentially flat employment, with small businesses adding jobs and medium- and large-sized companies losing jobs," says Joel Prakken of Macroeconomic Advisers.

Small businesses added 50,000 jobs last month, a big jump up from the 7,000 added the previous month. Small businesses' relative lack of exposure to construction and housing continues to make them more resilient than bigger businesses when it comes to jobs.

Scott Shane just blogged about a fascinating study by Rob Fairlie, an economist at the University of California-Santa Cruz. Fairlie was interested in entrepreneurship in the black market and how it relates to legitimate entrepreneurship. So he looked at data regarding drug dealers, and he found that they were 10 to 11 percent more likely to become self-employed in legitimate businesses than people who weren't drug dealers.

Now you might say that this should be expected—people with criminal backgrounds might have fewer chances to be hired by someone else, so they have no choice but to work for themselves. But Fairlie crunched the numbers and discovered that structural factors like education and incarceration can't explain the difference. This led him to an explanation that might make some people uncomfortable: The same personality traits and skills that draw people to becoming "businessmen" in the drug trade also lead them to be regular small-business people.

Good news all around from today's Discover Small Business Watch survey, which covers small-business owners' attitudes and economic situation as surveyed in the middle of July. On pretty much every indicator, things have improved for small businesses—and it all seems to link back to that one magic question, "How's your cash flow?" Last month, 42 percent said that they had experienced cash flow problems in the past 90 days. But that number fell all the way down to 33 percent for this month.

In addition to (or maybe as a result of) all this cold hard cash, small-business owners have found more optimism in the past month. Now, 28 percent think their economic conditions are getting better, up from 23 percent last month, and 17 percent rate the economy as "good" or "excellent," up from 12 percent. Those numbers are around where they were one year ago.

Can we say that fears of a small-business recession should be fading?

Wow—just a week after the Los Angeles Times published its analysis of how the political climate is turning against free markets, the Wall Street Journal has its own piece on the same subject. While this is, overall, a more balanced piece, it still embraces the same false dichotomy that the L.A. Times piece did. An excerpt:

On the state level, California regulators clawed back as much control as they could of the state's electricity market after a failed experiment in deregulation that started in 1998. "Excesses by markets bring the pendulum swinging back toward government," says Michael Peevey, the Democratic president of the California Public Utilities Commission.

News flash from the Los Angeles Times: Free markets are sooo yesterday!

Well, that's not exactly what it says. But L.A. Times staff writer Peter Gosselin sums up his point at the end of this piece as essentially this: The best thing we can hope for to deal with high gas prices, financial turmoil, and other current calamities is "New Deal Lite." He also writes that "the nation and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable, and efficient society."

Employers, take note: Today, the minimum wage rises to $6.55 an hour. That's the second of three scheduled increases. Next year, it will go up to $7.25 an hour. But this is just the federal minimum. States have their own laws, which complicate the matter.

Business & Legal Reports, a newsletter publisher, has a handy state-by-state guide to the minimum wage increase. Twenty-five states will see an increase to $6.55, while the other half already have their minimum wages set above that new floor. The highest is Washington State's, at $8.07.