Are Obamacare and Red Tape Making Small Businesses Hire Fewer Workers?

After the recession we came out of, and with the massive excess in capacity we have at large multinational companies, the small business component of the economy is where the major gains likely will have to come from for continued employment gains. After looking at the data from the National Federation of Independent Business (NFIB), something very concerning stands out around the new health care implementation and around red tape.

The Small Business Optimism Index rose to 92.5 in November from October’s 91.6 reading. That is a small uptick, but small businesses hired only about 0.05 workers per company in November, versus closer to 0.1 workers in October. Yes, about half.

Where the problems are arising is that small business owners expressed concern specifically over government red tape and regulations, taxes and poor sales, and also regarding the availability and the costs of health insurance as the Affordable Care Act is kicking in.

It may seem odd that small and independent businesses are concerned more and more about health care when businesses with fewer than 50 employees are not directly affected by the law. The issue is that plans offered may no longer qualify at the individual level and they may be far more expensive. If small businesses that do offer insurance decide to send all of their workers to the exchanges, then the cost of health care at the worker level is going to skyrocket.

Small-business employment is listed by the NFIB as being better at the end of 2013 than at the end of 2012, but not enough to restore the 2007 level of hiring. The NFIB brought up concerns being higher taxes, regulations and health care costs. On hiring, the NFIB called the rate ho-hum and said:

NFIB owners increased employment by an average of 0.05 workers per firm in November (seasonally adjusted), half the October figure, but positive. Seasonally adjusted, 14% of the owners (up 2 points) reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 12% reduced employment (up 3 points) an average of 3.4 workers. Fifty-one percent of the owners hired or tried to hire in the last three months and 44% reported few or no qualified applicants for open positions. This is the highest level of hiring activity since October 2007. Twenty-three percent of all owners reported job openings they could not fill in the current period (up 2 points), a positive signal for the unemployment rate and the highest reading since January 2008. Thirteen percent reported using temporary workers, down 2 points from October. Job creation plans gained 4 points, rising to 9%, reversing the loss posted in October.

The NFIB’s chief economic is Bill Dunkelberg and he said:

There is a hint that owners are getting an inkling of what Obamacare might mean for labor costs, concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small firms aren’t currently required to provide insurance (this could change in the future of course), but many do. These owners may find their insurance plans “unacceptable” to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will certainly be a source of angst and confusion in 2014.

The full NFIB report is mixed, despite the growth. There is a disappointment on the growth, considering that things seem to be moving along better than expected when the D.C. infighting was so high in October.