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Few Big Axes at Small Businesses

The recession has resulted in layoffs everywhere. But employees at small outfits may have less to worry about than those at corporate giants. A poll by the National Association of Business Economists, which surveys economists at big businesses, shows that those with a pessimistic economic outlook for 2003 outnumber the optimists by 20 percentage points. In contrast, the latest economic report from the National Federation of Independent Business (NFIB) reveals that the share of small-business owners planning to hire in the next three months is 11 percentage points greater than the percentage who are planning to lay off workers.

"If you went industry by industry, you'd find that more small firms are hiring than big ones," says Bruce Phillips, a senior economist at the NFIB. "That's always true in recessions. Large firms are more labor-intensive, and people don't stay as long at small firms as they do at big ones."

SLOW TO FIRE. Small concerns are also more likely to be hiring because they tend to be clustered in areas that haven't been as hard hit as the manufacturing sector, which has been clobbered. Industries with a disproportionate share of small businesses -- health services, legal services, and recreation services -- are all doing relatively well, according to the NFIB.

Even in good times, small outfits are likely to be leaner than big ones, making layoffs during a downturn less necessary. And once they get top talent, small companies are loath to let staff go. "With large businesses, the first step in cost-cutting is to hand out pink slips," says Brian Lego, an economist with "Small businesses aren't going to hire anyone, but they're not going to fire anyone." In October, the number of small businesses that were still hiring edged out by 1% those that were decreasing employment.

The cautious crowd includes those companies in retail trade and services, which account for 60% of small outfits. With the outlook for the holiday-shopping period uncertain, they didn't do much seasonal hiring, says Phillips. Instead, they extended hours for the staff they already had.

SLIMMER SALARIES. Still, the NFIB says 19% of small businesses have a job opening they can't fill. The position may be open for a variety of reasons, including a lack of money to pay the extra salary or trouble finding the right skill match. About 77% of companies looking to fill jobs say a shortage of qualified applicants was a problem. "The lack of hiring by small businesses is due to a lack of money, not the unwillingness of executives to consider them," says John Challenger, CEO of Chicago-based outplacement service Challenger, Gray & Christmas.

That may not improve until more small outfits are able to shed the inventory they've been hanging onto for years. "It was a much quicker turnaround for the rest of the economy because of the mass liquidation in tech and telecom," says Lego.

While those industries managed to clean out much of their old inventory in about two quarters, it has taken small businesses five or six quarters. The share of small concerns reporting that their inventory is running low is still too small, says Lego. "It has improved, but it needs to get better." That sentiment could apply to the situation of many large companies as well. By Kimberly Weisul in New York

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