Outsourcing and regulations could be to blame for the lack of domestic hiring.
While presenting this month's Private Company Outlook report Tuesday, Sageworks chairman Brian Hamilton and Anish Rajparia, President of ADP Small Business Services, said that as the nation continues on its way to recovery, one vital component seems to be missing: jobs.
"The fact is that the overall economy, especially with private companies, is very strong, but they are not hiring," insisted Brian Hamilton.
According to the report, private U.S. companies' sales saw 10.2 percent growth during a six month period ending in March. Such growth within the private sector cannot be sustained without an uptick in hiring, explained Hamilton. He added, the lack of domestic employment by private companies could be caused by externalities such as outsourcing and regulations. Uncertainty due to regulations compliance could also affect hiring trends among small businesses, said Rajparia.
"Small businesses have not only been the most resilient, they have come back. That's the only part of the economy that has employment similar to that of 2007," he said, adding that it's difficult to say what the next year or five years will look like for these businesses under Affordable Care Act.
According to ADP data, since 2001 there have been 4,680 changes made to the U.S. Tax Code. That's more than one change per day. Currently, there are 17,000 more changes proposed in over 10,000 jurisdictions.
"How do you manage this as a small business?" Rajparia asked. While 44 percent of small businesses feel confident that they are in full complacence with laws currently in place, ADP reports that only 30 percent are actually in compliance with the Fair Labor Standards Act.
Compliance is the "force that's fighting against the employment growth," said Rajparia.
Rajparia noted that most of the U.S. jobs that have been gained back by small businesses are within the service sector since the service companies do not have the ability to outsource. "Certainly the goods producing companies have more leverage and the ability to [outsource], which is probably why the service companies are growing the [U.S.] employment the fastest," he said.
At 10 percent growth, it's not possible to have zero employment growth, he added. Consequently, companies are likely hiring overseas, are hiring temporary flexible labor or are lagging in their hiring while taking their profits today.
JANA KASPERKEVIC is a graduate of Baruch College, City University of New York, where she earned a bachelors degree in Journalism and Political Science. She covers start-ups, small businesses, and entrepreneurship for Inc. Her work has appeared in The Village Voice, InvestmentNews, Business Insider, and Houston Chronicle, among others. She lives in Brooklyn. @kasperka