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San Diego Small Business Wages Lag Behind

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Higher pay at bigger firms make it harder for small business to compete

San Diego Small Business Wages Lag Behind
San Diego Small Business Wages Lag Behind GUESTS: Marquise Jackson, regional director, San Diego & Imperial Small Business Development Center Mike Sovacool, lead economic development specialist, U.S. Small Business Administration

>> We moved out from news about San Diego's largest business to the more typical business structure in San Diego. Small businesses. They are the engine that fueled the San Diego economy. But apparently the large number of small businesses is also one reason why wages are low and so many San Diego's are struggling. The San Diego economic development Corporation recently tech small business wages as one of San Diego's three economic pain points. Areas of concern that increase income inequality. >> This week we will be exploring each of San Diego's three economic pain points in more depth. Today the subject is small business. In joining me are Marquise Jackson, regional director of the San Diego and Imperial small County develop business development Center. Marquise, welcome to the program. Thank you for having me. >> And Mike silver core is here today with a lead specialist with the US small business administration. And Mike, welcome to the program. >> My pleasure. >> Now Marquise, let me start with you. The reasons businesses being pointed to as a potential economic problem is because number one, the overwhelming majority of San Diego businesses are small. Number two, small businesses pay about 20% less than the average. >> And I would imagine as a director of a small business development Center, you don't usually see small business as heart of the problem, but has this issue about low wages, before? >> It has. A small business owner can only afford to pay their employees at the business can bear. So as a small business owner, they have to make careful decisions on how to deploy the resources in the best manner that allows them to grow their business. >> You know Mike, speaking about large corporations, when it comes to comparing small businesses with a corporation like QUALCOMM, the wage disparity is more like 45%. Why are bigger companies able to pay so much more? >> Will look, let me just start this way. Small business to make up a preponderance of the businesses in the area. However the employee number is almost half of what large businesses is like 52% of the employees work large businesses, 48 for large for small businesses. >> Large businesses pay more because they make more money. They have better and better developed if a structure. It's over all cheaper to pay insurance, take contributions. Compensation other than salaries. >> And so they can, they have the wherewithal, the info structure to go out and find the best of the talent and pay the best of the town. >> And that's what they do. >> Now Marquise, our salary increases in good which is a priority was small businesses or do they expect lots of employee turnover anyway so just really matter? >> It depends on business. Certain types of small businesses say the innovation Bay small businesses do have to attract high level employees, and those are the competent those employees usually by giving them equities stake in the company. So even though the pay disparity may be different, you don't as an employee, get to take equity stakes in large corporations, but as an employee of a small business owner, you get ownership in the company and as it grows, the ownership grows intercompany your compensation [ Audio cutting out ] >> Grows that way. So small business owners have to find craft your ways to compensate their employees and they usually do it that way, and I think a small business owners are allowed to grow their businesses, especially from events like the tax breaks, they will look into okay, I've got a tax break now. I can invest in my business. Is that more equipment so I can put more people to work to sell more product, or is that based on a particular type of business so that I am invested in their professional development so they are able to benefit my business and I can retain that talent? >> So truly expensive it's a small restaurant, they expect that. >> So what you are saying and even without the tax break this year, it's really such a small percentage of small business owners said that they would use that tax break to increase the salaries of their employees. And that's because generally speaking, that is not what they are going for. They are going to expand their business. That's what they are looking for. >> Yes, yes. Bottom line is every business owner has a responsibility is to do what's best for the shareholders of the business. Usually a small business there's one person who is a shareholder, and what's best for that business is to grow. We rarely consider small business owners as employees of the business. They work a lot of the time. 50, 60, 70 hours in the business, and their businesses number one employees, so to speak. So in essence, half as the business grows, the compensation [ Indiscernible ] is the business owner grows as well. >> Now the economic developing corporation has tagged small businesses in the smaller wages that they pay, as one of the problems that we have economically in San Diego County. >> How do you see that playing out? Do you think Marquise, that is itself can solve this problem or will we need some help from policymakers and government? >> Well I think we definitely need some help from policymakers. If we have policymakers come in and think about changing things like tax regulations. We could see the business owners now have the opportunity to create growth in the business. One of the programs here in the state of California is that Cal competes tax credit. So it's by regulation that allows businesses in California who want to hire and grow and invest, to receive tax credits. That's an incentive for small businesses to make an investment in the business because they can directly see the benefit from it. But I caution overregulation. >> And I'm wondering Mike, as a representative of the US small business in menstruation, where you see the role of the federal government in trying to alleviate this problem a little bit so that the wages in small businesses become a little bit more competitive? >> How can you address me just district wage issue? We can't have tax credits for hiring people, but that won't solve salary difference. It will just put more people to work. >> The good talent is going elsewhere. There would have to pay more to keep more. Pay more to drum up. So if there is a lot of high quality talent, then the case of supply and demand is affected by that. It's a limited amount. In the case of supply and demand. As well. >> And so can the government do something? The government did do the tax cuts. They did lower regulations. >> That generated a lot of put back into the businesses. We reach out to several small businesses and said what did you do because of the tax cut backs and a lot of people mentioned they large pieces of equipment. Some people but to additional bulldozers. One guy enhanced he's in the IT world, he enhanced the system. Both of them hired new project desperate to project managers. You have to look at the San Diego social make up. Is that the driver of the difference, or is it a symptom. That would probably take more study. You can force people to pay you can force people to pay more than you can force people to pay more but I'm not sure that's the right way to do. You have to keep up with the supply and demand of talent in that you do that. I've been speaking with Marquise drag Stagen Jackson regional director of the Imperial small business center and Mike Silverthorn lead specialist with the San Diego office of the US small business in menstruation. Thank you both very much. >> Thank you.

Small business is the engine that fuels the San Diego economy. But the San Diego Regional Economic Development Corporation recently pointed to the large number of small businesses in the region as one of three areas of concern that could lead to even greater income inequality.

The EDC found 98 percent of companies in San Diego have fewer than 100 employees and they pay up to 20 percent lower wages than the regional average. The gap is even wider between small business and those with more than 1,000 workers. Bigger firms pay 45 percent more than the average.

“This disparity makes small businesses less competitive in attracting and retaining talent,” the EDC said in a report last month.

RELATED: San Diego Businesses Point To Looming Economic ‘Pain Points’

Because 59 percent of San Diegans work in those smaller firms, compared to 49 percent nationwide, the disparity also depresses wages.

It’s natural that big corporations are able to pay less for things like insurance, rent and raw materials when bought in bulk, according to Mike Sovacool, lead economic development specialist at the San Diego office of the U.S. Small Business Administration. Small businesses have to increase their revenue before they can pay workers more, he said.

“I’ll be the first to tell you, the reduction in taxes and regulations all helps,” Sovacool said. “One guy was able to buy another $100,000 backloader and hire an additional project manager.”

But a recent survey showed only about 10 percent of small business owners planned to give workers a raise after last year’s tax cuts.

Businesses looking for lower-skilled workers may not need to boost wages in order to attract talent, but high-tech firms do, said Marquise Jackson, regional director of the San Diego & Imperial Small Business Development Center. Without more cash-on-hand, those innovation-based firms may offer employees equity in the company, something larger companies are more hesitant to do, he said.

“Small business owners have to find a craftier way to compensate their employees,” Jackson said.

As part of our weeklong coverage of the threats to San Diego's economy, Jackson and Sovacool join KPBS Midday Edition on Tuesday with more on how small businesses can compete and what role government can play in increasing overall wages.

What questions do you have about the Statewide General Election coming up on Nov. 8? Submit your questions here, and we'll try to answer them in our reporting.