Matt Quinn

Small Businesses Increase Payrolls, Shrink Paychecks

 

July 13, 2004 -- A new small business employment survey is adding credence to the theory that, while the economy is adding jobs, the quality - or at least pay - of those jobs is less than those lost over the past few years.

Small businesses increased their headcount 2.2 percent in the second quarter of 2004 relative to the first quarter, according to data from more than 10,000 small businesses tracked by SurePayroll, Inc., a payroll services provider. However, the average paycheck size was 1.7 percent lower than that in the second quarter of 2003.

The increased headcount also marked a slight slowing of the hiring rate. Payrolls grew nearly 2.3 percent in the first quarter 2004 compared to the fourth quarter 2003.

The added jobs are an encouraging sign that business is strong, but the lower paychecks suggest that there is an abundant pool of out-of-work jobseekers.

"It remains a buyer's market for new employees," said Michael Alter, president of SurePayroll. "New employees simply cannot demand high salaries and, more often than not, must settle for what's offered to them. That's because there's somebody waiting in line right behind them with identical or better qualifications who is willing to work for less money."

Additionally, with more employees to handle the workload, the average worker is clocking in fewer hours, according to Alter.

"Because the average small business has more employees, their work is spread across a larger base and each employee doesn't have to work as hard as they did in the past," said Alter. "Accordingly, as fewer hours hit the timecards, each employee earns less money on average."

By region, the Northeast saw the biggest jump in jobs, adding 3.7 percent over the first quarter. The Midwest saw the smallest increase, with the headcount increasing only 0.3 percent.

The Northeast's average paycheck increased 6.25 percent, the largest improvement. Average paychecks in the West plummeted 5.2 percent, the only region experiencing a decline.

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.