Small business advocates are calling for more support from the state Legislature to help companies that they say are not recovering at the same rate as other sectors in Michigan’s economy.
The service industry, which is dominated by small businesses, has been more directly affected than other industries by supply chain issues, the struggle to stay fully staffed, and other effects from the pandemic. Personal consumption expenditures on goods have fully rebounded, but personal expenditures on services remain below pre-pandemic levels, according to the fall Entrepreneurship Score Card released last month by the Small Business Association of Michigan (SBAM).
Finding ways to increase the labor force participation rate is the main way to get small businesses back on track, said SBAM President Brian Calley. However, that will be the biggest challenge if previous recessions are any indication, said Calley, who served as lieutenant governor under former Gov. Rick Snyder.
“Labor force participation has not rebounded after recessions in the past, it’s continued as a flat or downward trend,” Calley said. “It jumped up after reopenings, but not all the way. There isn’t a good reason to expect we’ll gain workers back any time soon because the trend has been so persistent in its decline over the past 20 years. That’s what I’m most concerned about.”
As of September, 29.7 percent of small businesses in Michigan saw their employment still below pre-pandemic levels, according to the Entrepreneurship Score Card.
Other pre-pandemic trends are also working against the employment and workforce participation rates. Michigan has experienced an increase in residents leaving the state over the past 10 years as 23,435 more people moved out of the state than moved into the state, according to the 2020 U.S. Census. Michigan also has a relatively older population, which contributes to lower birth rates and a higher rate of retirements.
Calley believes policymakers are looking at the labor issue as a short-term, rather than long-term, problem.
“Policymakers need to really zero in when they make decisions on whether this decision improves or detracts from available labor force participation,” Calley said, adding that doing so will require more than quick fixes.
“It will be a whole series of dozens of policy changes all meant to make a little bit of progress at rebuilding the amount of labor we need,” Calley said.
Those measures could include expanding the number of H-2B visas — which allow employers to temporarily hire foreign workers for seasonal jobs — as well as putting more funding into child care and programs that help people go back to school or get further job training, Calley said.
Getting capital out
The Michigan Department of Labor and Economic Opportunity recently issued more than $2 million in grants for adult education, workforce training programs and local businesses looking to hire more workers. Allegan County Area Technical & Education Center, the Kent Career Tech Center, the Muskegon Area Career Tech Center and Careerline Tech Center in Zeeland will each receive up to $35,000 of the grant money for adult education programs.
“What we really need is transparency on how the government will ensure those dollars make it to small business leaders,” said Hanna Schulze, president of Grand Rapids-based People First Economy. “We saw this frankly every time a new package of stabilization dollars was rolled out for the business community — small businesses struggle to get their hands on that capital.”
The type of financial aid is also important, Schulze stressed. The American Rescue Plan Act (ARPA) includes $10 billion in funding for the State Small Business Credit Initiative (SSBCI), for example.
“This is helpful, but we need small businesses gaining access to stabilizing dollars not tied to certain things,” Schulze said. “We really need flexible capital to help small businesses get stabilized.”
Unlike earlier parts of the pandemic when COVID-19 cases surged, the latest rise in cases have not been accompanied by shutdowns and direct aid to small businesses, said Paul Lee, co-owner of All In Hospitality Group LLC, which owns Grand Rapids restaurants Donkey, Hancock, Royals and the Winchester.
“The cost of doing business has gone up exponentially and this is the time that more support is needed, and I don’t think it needs to come with more mandates,” Lee said. “The idea behind the mandates is great to keep people safe, but it doesn’t work well having blanket mandates because (COVID-19) affects industries differently.”
He added that the service industry climate is perhaps even more difficult now because of a lack of assistance like forgivable Paycheck Protection Program loans.
Supply chain issues have raised the prices of food and restaurant equipment, as well as lead times on pieces of equipment that Lee could invest in to launch other business concepts, he said.
“We’ve got opportunities for growth, but some of those opportunities have been stifled because of the lack of equipment,” Lee said. “We’d love to be able to expand into other restaurant opportunities.”
Lacking some kind of “drastic action” such as another round of PPP loans or grants, Schulze believes many more small businesses could close in the first quarter of 2022, especially for businesses owned by people who are Black, Indigenous, people of color (BIPOC) and women.
“People are spending money right now for the holidays, so there might be a cash influx that will float folks into the new year, but Q1 and Q2 tend to be really rough,” Schulze said. “Labor shortages and turnover rates were an issue before the pandemic. What we saw happen, it’s a house of cards. We need to recognize there were circumstances outside of the pandemic that put us in this position such as unstable wages and high cost of living — we’re seeing those issues being exacerbated now.”