Top states for small business growth
Source: The Paychex/IHS Markit Report
Tennessee led the nation in the growth of small businesses during 2017, although the growth didn't necessarily translate into bigger wage gains for workers at such businesses.
According to data compiled by one of the nation's biggest payroll providers, Tennessee's small business employers added workers at the fastest pace of any state in the nation last year, growing more than 2 percent during the year.
Paychex, the payroll provider for 605,000 businesses and organizations nationwide, said wage data show the Volunteer State is growing at the fastest pace.
"This index reflects what is happening on Main Street with a lot of mom and pop operations with under 50 employees and those type of businesses often grow as an offshoot to major development or growth in an area, like what you are seeing in the automotive industry in Tennessee and around high-growth cities like Nashville," Frank Fiorille, vice president of risk management and data analytics for Paychex. "Tennessee is well located and its economy is doing very, very well right now with transportation, automotive and other sectors. That helps small businesses to also grow."
While the Volunteer State added jobs at the fastest pace among all states, wage growth in the past year still trailed the U.S. average. Paychex said the average Tennessee worker at small businesses with payrolls through Paychex made $22.54 an hour at the end of 2017, up 1.96 percent in the past 12 months.
By comparison, the average pay for workers at small businesses nationwide rose 2.85 percent last year to $26.14 an hour.
Georgia workers, on average, got an average pay boost last year of 3.2 percent — the fourth fastest of all states — to $24.91 per hour.
"Small businesses are often very sensitive to minimum wage increases and in areas like Phoenix we've seen significant increases in local minimum wage rates and in wages overall," Fiorille said, noting that Arizona had the fastest wage growth among all states last year.
Across America, 18 states and scores of municipalities raised their minimum wage rate this week, but Tennessee and its cities were not among those imposing government-mandated increases above the federal minimum wage rate of $7.25 an hour.
Jim Brown, Tennessee state director for the NFIB, said Tennessee is growing faster than most states because it doesn't impose as many costly regulations as many other states do on businesses.
"Some of the major reforms we made in Tennessee in workers compensation (in 2014), unemployment insurance (in 2011) and eliminating estate taxes and other tax reforms (in 2015 and ongoing) have really been helpful, not only for businesses that are here but in attracting new businesses to our state," Brown said. "A lot of folks from all over the country are loading up U-hauls and coming to Tennessee."
Brown said with the statewide jobless rate dropping to only 3 percent last fall in Tennessee, the labor market is tightening and wages are likely to increase in the new year.
"There is a lot of optimism among small businesses right now, but the challenge for many is to find qualified workers to staff all of the available jobs," Brown said. "Getting enough workers four or five years ago ranked No. 32 on the list of concerns by businesses we survey, and now getting qualified workers ranks among the top 3 business concerns."
Paychex officials said the increased demand for workers is likely to push up wage increases in 2018 more than in previous years since the Great Recession of 2009-2010.
"While small business jobs growth slowed this year, it's important to recall that small businesses led the hiring surge coming out of the recession and maintained high levels of growth for quite some time," said Martin Mucci, Paychex president and CEO. "It will be interesting to see the impact tax reform makes on job and wage growth in the months ahead."
Contact Dave Flessner at email@example.com or at 757-6340.