Advocacy Report Shows Link Between Capital and Hiring

December 18, 2013

pic-couple-cafeThe U.S. Small Business Administration (SBA) Office of Advocacy recently released a report analyzing the factors that cause small firms to hire their first employee. Given small businesses historic role in job creation—responsible for 64 percent of net new jobs created between 1993 and 2011—understanding what incentives cause that first hire is critical.

According to the report, entitled “Crossing the Employer Threshold: Determinants of Firms Hiring Their First Employee:”

  • Employers are more likely to hire their first employee in the first three years after startup;
  • Incorporated firms with available assets and/or intellectual property are more likely to hire their first employee;
  • Wholesale trade, transportation, manufacturing, and professional industries are more likely to hire employees compared to other industry sectors; and
  • Entrepreneurial training may lead firms to hire their first employee.

This study builds upon a report from the U.S. Census Bureau’s Center for Economic Studies, which shows that about one percent of non-employer small firms switch over to employer firms annually. Advocacy’s research shows that, between 2004 and 2011, 59 percent of non-employers in the survey group hired their first employee, 13 percent did not hire anyone, and 28 percent went out of business. Among those who hired someone, 38.1 percent did so in the first year and 54 percent did by year three.

Underscoring what NSBA data has been showing for two decades, the report shows that firms with greater availability of assets and thereby a greater ability to leverage capital are more likely to hire employees.

Please click here to view the full report.