Want Good Jobs? Support Small Employers

In recent years, philanthropy, nonprofits and government have increasingly focused on job quality to increase economic mobility and racial equity — work that has become even more urgent in the wake of COVID-19. Efforts to define and measure job quality are groundbreaking and important because what gets measured can be managed. Yet these efforts risk falling flat unless we also deeply engage small employers.

If we are to get job quality right, we must understand and respond to the needs of small employers, a crucial business segment that employs 52% of the nation’s 134 million workers and 65% of low-income workers.

To better understand how small employers think about job quality, Reimagine Main Street and Common Future surveyed 1,265 Asian American Pacific Islander (AAPI), Black, Latino/a, Native and white small business owners with 100 or fewer employees.

The survey results illuminate how business performance shapes job quality, and point to three strategies philanthropy should pursue to improve job quality for millions of workers.

Invest in accelerating growth and increasing profitability of small businesses, especially those that employ Black and Latino/a workers.
Create incentives for already strong small companies to strengthen job quality.
Stimulate market and policy innovation to make affordable benefits available at scale.

Specifically, the survey found:

Small employers are frequently in the same financial boat as their workers: Our survey suggests that when it comes to small employers, business owners and their workers struggle with financial health at roughly the same rates.
Small employers generally employ people of the same race or ethnicity: About a third of Black and Latino/a business owners in our sample employ an all Black or Latino/a workforce, and 25% of white owners said their entire workforce is white. Three out of four Latino/a respondents said at least half of their workforce is Latino/a and 81% of Black and white business owners reported that at least half of their workforce is the same race.
Often simply making payroll presents a challenge. Business performance affects compensation levels and tight margins constrain wage growth, especially for most Black and Latino/a small employers: More than 40% of Black and AAPI small employers said making payroll is a problem, and 1 in 5 said it is their biggest problem. At least a third of all respondents said compensation levels are a function of what the business can afford to pay, and more than half of Black and Latino/a employers said their margins cannot sustain higher wages.
The financial health of workers is better when business performance is strong: When a business is profitable, the share of workers with strong financial health increases by as much as 30% compared to those working at businesses that are not profitable. Moreover, worker financial health is at least twice as likely to be “excellent” versus “struggling” when the business is profitable.
Small employers see benefits as worker incentives but say offering them is cost-prohibitive: More than 80% of the small employers surveyed offer employees some form of benefits, but fewer than half of AAPI, Black, Latino/a or Native small employers said those benefits packages include financial benefits such as health insurance, paid leave or retirement savings. More than half of AAPI, Black, Latino/a and white small employers report that when they do not provide benefits, it is because it is too expensive.
Business owners are likely to manage human resources decisions directly, which is a constraint — but also an opportunity: Nearly two-thirds of small employers said they manage human resources decisions themselves. This suggests that owners have limited bandwidth, but also that if they can be persuaded, action to improve job quality is likely.

Given these findings, foundations committed to economic mobility, racial equity and improving job quality for low-income working people should target their funding in three areas:

Strengthen small employers’ business performance: While revenue and profit are critical for good jobs, the Federal Reserve’s 2022 Small Business Credit Survey shows 85% of small businesses experienced financial challenges during the prior 12 months. To increase business financial health, philanthropy should support business incubators and accelerators, invest at scale in community development financial institutions (CDFIs) and minority depository institutions (MDIs) that provide affordable capital and quality business advisory services, and champion public policies that increase access to government contracts. Investment in product and business model innovations including revenue-based financing and shared service models to reduce the cost of critical business services have proven useful for financially stretched small businesses. These supports can be especially useful for POC-owned businesses struggling with financial performance. With more opportunities, money and guidance to help them grow, small employers will be more likely to succeed and better able to invest in their employees.
Create incentives for higher-performing small employers to further improve job quality: Small employers give themselves high marks for critical but intangible dimensions of job quality, ranking trust and flexibility as their primary employee value proposition. And about one in five respondents to our survey reported paying above-market rates. To build on the strengths of high-performing small employers, foundations could provide capital to responsible lenders in order to reduce financing costs for small employers in exchange for job quality covenants. Foundations could also adopt contracting preferences for small employers that provide good jobs and, where necessary, layer in support and incentives to promote specific practices.
Invest in market and policy innovations to make affordable benefits available at scale: The majority of survey respondents that do not offer benefits said it is because benefits are cost-prohibitive, which means there is a major opportunity to innovate solutions. Foundations are well-poised to invest in and incubate marketplace innovations and to advance smart public-private partnerships that address availability, access, ease of administration and cost.

Employers in and on MLK Boulevards, Cesar Chavez Ways, Chinatowns and Main Streets across our country hold the key to creating good jobs that increase economic mobility and racial equity for tens of millions of Americans. Philanthropy should do more to embrace the lessons revealed by our survey and address the challenges small employers face to unlock that potential.

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Rhett Buttle is Founder of Public Private Strategies & President of the Public Private Strategies Institute.

Todd Greene is an Institute Fellow at The Urban Institute and the Executive Director of WorkRise.

Tammy Halevy is the Executive Director of Reimagine Main Street.

Lauren Paul is the Director of Partnerships & Policy at Common Future.

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