A new report from the payroll company PayChex ranked the states in order of small business job growth and Arizona came out No. 1, with nearly 6% growth over the past year. Phoenix ranked third among the country’s 20 most populated cities. The Arizona Legislature released a report shortly before that showing Arizona is in great condition, breaking records. The state passed historic tax cuts this year, preventing a 77% increase on small business taxes, reducing small business property taxes by 10%, and capping the maximum tax rate on businesses at 4.5%.
Frank Fiorelle, vice president of risk, compliance and data analytics at Paychex, explained that much of the job growth is due to the pandemic ending. “A lot of those restaurants are coming back online, opening the doors and turning on the lights,” he said. He added that states which reopened their economies earlier have higher job creation rates.
The states with the next highest percentages of small business job growth after Arizona were Texas, North Carolina, Georgia, and Florida. The top seven were all red states.
The study compared job growth from 350,000 Paychex clients with 50 or fewer employees to what it was in 2004. It based growth on a baseline index of 100 which was the average rate of growth that year. Arizona came in at 101.72. Arizona aso did well in wage growth, ranking eighth in the nation for small business hourly wage growth, which grew 3.3% to $27.38.
Tampa was the top metro area for small business job growth, followed by Dallas, Phoenix, Atlanta, and Boston. The big cities with the worst growth rates were Washington, D.C., Seattle, San Diego, Baltimore and Detroit. Washington, D.C. has ranked the lowest of the 20 cities since historical reporting began in 2004.
The West and Northeast had similar levels of small business growth, 5.39% and 5.60% respectively. The South grew at 4.92% with the Midwest coming in at the lowest rate, 3.76%.
Small business job growth across the country tanked during the coronavirus pandemic down to a low in January, but has sharply increased since February. The leisure and hospitality industry performed the best, no surprise considering that industry was hurt the worst during the pandemic. Other sectors performed about the same, with professional and business services at the bottom.
However, the leisure and hospitality industry remains “critically underemployed.” Small businesses’ sales have only reached 80% of pre-pandemic levels, according to a survey by Kabbage. The survey found that 28% of all small businesses said it is difficult or very difficult to hire new employees. Respondents to the survey said on average they are working three to six additional hours per day than before the pandemic.
Arizona doesn’t always score very well in analyses of the best states for business, because the studies often take into account characteristics such as “dirty air” and “underfunded health care.” Across the U.S., small businesses create 64% of new jobs. COVID-19 rendered 31% of small businesses non-operational indefinitely. Over 70% shut down in March 2020, and over 60% of those were due to government or health authority orders.
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