Key Findings
- Employment growth among California’s small businesses decelerated for the third straight month, and furloughs increased. Small business headcount growth in California decreased to 0.9% in November, a deceleration from the 1.3% and 1.2% growth rates in September and October, respectively. For the 2nd month in a row, furloughs increased after five months of decline, and remain 89% higher than this time last year.
- The hardest-hit industries in California still have significant ground to make up from the major losses in March. While overall small business headcount in California is 3.5% greater than the beginning of March, businesses in hard-hit industries (Accomodations, Arts & Entertainment, Food & Beverage, Salon & Spa, Sports & Recreation, and Tourism) remain between 7% and 25% below March employment levels.
- December is off to a rocky start: Recent spikes in COVID-19 cases, and ensuing lockdown orders, have led to significant declines in staffing levels within already hard-hit industries. Data over the first two weeks of December indicates that businesses in the Salon & Spa, Accommodations, and Food & Beverage sectors have all experienced large drops in headcount as the month begins: Salon & Spa by 7.09%, Accommodations by 4.19% and Food & Beverage by 1.38%.
November ‘20 Small Business Trends
California Workers on Furlough 89% Higher than Last Year
Table 1 below shows the month-by-month employment outcome for workers who were employed in California in February of 2019 and 2020. Furlough rates, termination rates, and the rate of workers experiencing a reduction in hourly wage of 10% or more have remained persistently higher than the same period last year since spring.
Of workers who were employed prior to COVID in February ‘20, 6.2% of those workers are furloughed as of November ‘20. This is a slight tick upwards from the rate of workers who were furloughed as of October ‘20 (6.1%) and the second straight increase, after falling from April through August. The furlough rate observed in November ‘20 is 89% higher than the furlough rate in November of last year. These elevated furlough rates, both month-over-month and relative to last year, could be one of the first indicators of the impact of rising COVID cases on small businesses and the actions that their owners and operators are forced to take.
Table 1. Rates of employer actions affecting employee wages for 2019 and 2020 as compared to February of the same year.
Net Headcount Growth Falls in November
As shown by the top black line in Figure 1 below, small business headcount growth in California decreased to 0.9% in November, a deceleration from the 1.3% and 1.2% growth rates in September and October, respectively.
The bottom panel of Figure 1 charts the components of the net hiring rate: hirings and terminations. Both the hiring rate and termination rates among small businesses fell from October to November, although the hiring rate fell slightly more, leading to a drop in the net hiring rate.
Figure 1. Monthly net change in headcount and hiring, termination, and layoff statistics.
Cumulative Rebound in Employment Remains Below Expectations
Between March and November, headcount overcame a deep deficit to surpass its pre-COVID levels by 3.5% (as shown in the 2020 line in black in Figure 2). However, employment growth of 3.5% is still far below the growth California’s small businesses would expect in a typical year. Over the past three years, employment has grown by an average of 13.2%. This year’s growth rate is 74% lower than expected.
Figure 2. Cumulative % change in headcount between the beginning of March and end of November from 2017-2020.
Industry Trends
Many Industries Still Have Not Made Up Headcount Losses
In California, headcount growth among industries hit hardest by the pandemic remains stagnant. Employers in almost every hard-hit industry (Accomodations, Arts & Entertainment, Food & Beverage, Salon & Spa, Sports & Recreation, and Tourism) are still operating with fewer employees than they were at the beginning of March.
Additionally, in the second half of November, many industries that had made progress recovering to pre-pandemic employment levels saw growth turn negative again. Salon & Spa, Food & Beverage, Accommodations, Sports & Recreation, and Tourism have all experienced dips in employment in the final two weeks of the month, as some firms rolled off their 24-week PPP headcount criteria and COVID cases began to rise quickly across the state.
Figure 3. Cumulative change in headcount from March 2, 2020-November 30, 2020 across industries heavily affected by COVID and all others.
Monthly Industry Growth Rates
As displayed in Figure 4, headcount among California’s small businesses grew again across most industries in November, although many industries that had experienced growth through the fall are now shedding staff. The largest monthly losses were seen in Nonprofits & Associations (-2.5%), Arts & Entertainment (-1.5%), and Accounting (-1.3%). Some of the largest changes were made in the following industries:
Largest Growth
- Retail (2.5%)
- Manufacturing (2.1%)
- Accommodations (2%)
Largest Losses
- Nonprofits & Associations (-2.5%)
- Arts & Entertainment (-1.5%)
- Accounting (-1.3%)
Figure 4. Monthly Net Changes in Headcount: September-November
Geographic Trends
Large Disparities in Recovery Exists Between Metro Areas
Table 2 presents monthly changes in hiring and terminations—as well as the net change in headcounts—across California’s largest metropolitan areas. While all metro areas experienced net growth in November, the rates ranged from a relatively robust 1.62% in the Riverside-San Bernardino-Ontario metro area to a paltry 0.11% in the greater Sacramento area.
Table 2: November % Change in Employer Actions Across California’s Largest Metro Areas
Furthermore, there is a wide discrepancy among these metro areas in their cumulative recoveries since March. Figure 5 plots the employment levels of each metro area relative to the first week of March ‘20. While the Sacramento region experienced modest growth in November, it has recovered to the greatest degree by the last week of November, with 10.1% higher growth than the beginning of March. The San Francisco-Oakland-Hayward and San Jose-Sunnyvale-Santa Clara metropolitan areas have both just barely recovered from the pandemic-induced hole in employment (reaching headcount levels 1.2% and 0.6% greater than March ‘20, respectively).
Figure 5. Cumulative change in headcount since the week of March 2, 2020 across the largest California Metropolitan Areas
Employment Changes through December: Industry Trends
While this report has focused on changes in small business employment in California through November, Figure 6 extends the weekly industry-level data presented in Figure 3 through the first two weeks of December. This figure includes employment data through December 13, 2020, incorporating time over which statewide daily COVID-19 cases have surpassed levels seen in the spring and much of California is under lockdown restrictions.
While some industries have continued recovering, several that are most sensitive to these restrictions have dramatically reduced staffing levels over the past two weeks. Salon & Spa (-7.09%), Accommodations (-4.19%), and Food & Beverage (-1.38%) have all experienced large drops in headcount since the end of November.
Figure 6. Cumulative change in headcount from March 2, 2020-December 13, 2020 across industries heavily affected by COVID and all others.
Digging into the industry changes within California’s largest metropolitan areas, Los Angeles and San Francisco, Tables 3 and 4 display changes in headcount (hires, terminations, and net changes) for employers across the week of December 7. We limit the list of industries to three with a sufficient size to make valid conclusions. Almost all of these sectors have contracted or slowed this past week. Within both of these metropolitan areas, Food & Beverage businesses have contracted as restrictions on outdoor and indoor dining have taken effect.
Table 3. Changes in Employer Actions for Los Angeles, 12/7-12/14, Among Selected Industries
Table 4. Weekly Changes in Employer Actions for San Francisco, 12/7-12/14, Among Selected Industries
About Gusto
Gusto is a modern, online people platform that helps small businesses take care of their teams. In addition to full-service payroll, Gusto offers health insurance, 401(k)s, compliance and expert HR, and more. The company serves over 100,000 businesses nationwide and has offices in Denver, New York City, and San Francisco.
Appendix
Methodology
The analyses described in this report were based on two separate datasets obtained from Gusto’s small business payroll, benefits, and HR applications. The first dataset used payroll data to capture employee hours, wages, and furloughing (Work Reduction & Furlough). The second dataset used data from employers hiring and terminating employees (Hiring & Termination). When we define outcomes, we’re assigning one outcome per employee per month, which can block certain outcomes (Outcome Rank Ordering).
Work Reduction & Furlough
Employees in our dataset were labeled as furloughed if they were employed for the entirety of February, March, April and May (had no termination effective during that time), and either:
- had earned money in the final paycheck of the preceding month but had not earned money in the final paycheck of the following month (e.g. final paycheck of February was non-zero, and the final paycheck of March was $0), or
- met the definition for part 1 and also continued to earn $0 on payrolls in the subsequent month, thereby on a continued furlough.
Our furlough data in this April report only looks at furloughs that were active in April and were instigated in March or April, not furloughs that began earlier and have continued through this period.
Non-terminated, non-furloughed employees were labeled as hours reduced for the June report if the total hours of their June paychecks were less than 90% of the hours on their February (used as a benchmark for pre-COVID) paychecks. This calculation was done for both 2019 and 2020, where 2019 was used to represent the counterfactual case (what would have happened).
Presumed COVID-related differences were calculated by subtracting the rates of termination, furlough, and work reduction in 2019 from the same numbers in 2020. This rate difference was used to calculate the number of additional employees affected by each cost-saving strategy. The average dollars saved per affected employee was calculated as the difference between total February and March payrolls, divided by the number of employees, for each type of affected employee, and this dollar amount was multiplied by the COVID-related count of impacted employees to calculate the total dollars saved by each strategy.
Hiring & Termination
A given employee on Gusto can have multiple “employments,” since an employer can potentially hire, terminate, and rehire the same employee multiple times. In our Hiring & Termination dataset, a hire corresponded to an employer creating a new employment with a hiring date, and a termination corresponded to the entry of a termination date for a given employment. Layoffs corresponded to terminations where the employer listed the reason for the termination as a “layoff” (one of the choices from a standardized list in Gusto’s termination flow). In order to capture a more time-sensitive view of employer activities, we recorded hires, terminations, and layoffs on the date that they were entered into the system, rather than their effective date. Terminations are also coded as voluntary or involuntary.
Monthly reporting of termination data may differ slightly from prior reporting, as employers often log a termination several days or weeks after the employee was actually released. For example, more than a third of terminations that were created (logged in the system) in May were actually effective before May. Data in this report may also differ slightly from prior reports due to methodology improvements. Further employment changes are incorporated into this month’s analysis, such as reduction to hourly pay rate. We also separately categorized employees that worked for companies who “paused” their payroll service with Gusto. Employees that fall into this new bucket may have previously not been labeled as impacted, or may have been attributed as “hours reduced” for a given month.
When we assign an outcome to an employee for a given month, we follow this rank ordering:
- Employee Terminated
- Company Suspended/Paused
- Employee Furloughed
- Hours Reduced
- Hourly Pay Rate Reduced
What this means, in practice, is that if an employee’s hourly pay rate was reduced early in the month and then they were furloughed, we’ll count them toward the “Furloughed” outcome but not the “Hourly Pay Rate Reduced” outcome. The further down the rank order the outcome is, the more likely we are to undercount it in favor of something else.
Employee hires, layoffs, and terminations were aggregated weekly and monthly for a given company and work location. Hiring, termination, and layoff rates reported in this document are based on the number of times each event occurred in a given week or month, divided by the number of employees who were employed at the beginning of the period.
Locations reported in this document are based on the most recent work location associated with the employee. Industries reported in this document are based on self-report from customers within Gusto’s product.