Small Business Growth 2026: Why Retention and Pay Beat Layoffs
The layoff headline has become its own genre of business news. A large employer announces cuts, analysts frame it as prudent cost management, and the cycle repeats. What rarely gets equal attention is what the data shows when you look at the businesses that did not cut.
New research from Nav, powered by Gusto's Real Time Economic Data, analyzed 50 U.S. metro areas from November 2023 through October 2025. The finding is worth sitting with: the small businesses that rose to the top of the rankings did not get there by catching a favorable economic wave. They got there by holding onto their people and raising pay when almost every pressure in the environment said to do the opposite.
That is not a talent story. It is a leadership operating system story.
What the Data Actually Shows
Before interpreting the findings, the numbers deserve a direct read.
Across all 50 metros, small businesses reported an average net hiring change of -0.03%. In other words, the national baseline for small business hiring was essentially flat with a slight decline. Average pay growth across the same period came in at 3.02%, with the average small business employee earning $34.31 per hour.
The cities at the top of the rankings were not the ones riding unusual local booms. They were the ones whose owners made deliberate structural decisions about how to treat their workforce when conditions were uncertain.
St. Louis earned the top overall score of 96.43 out of 100, driven in large part by the highest pay growth in the entire analysis at 13.48%. Philadelphia ranked second with a score of 84.89. Jacksonville came in third at 79.87. San Jose and Minneapolis-St. Paul led on net hiring growth, posting average net hiring rates of 0.40% and 0.38% respectively.
None of these outcomes happened by accident. They happened because owners in those markets treated retention and compensation as operational priorities, not discretionary expenses.
The Leadership OS Lens: This Is a Systems Problem, Not a People Problem
The Leadership Operating System at Breakfast Leadership Network is built on three pillars: decision clarity, operational rhythm, and culture infrastructure. The Nav data maps directly onto all three.
Decision Clarity means making deliberate calls under pressure rather than defaulting to what everyone else is doing. The owners behind these top-ranked cities made a clear decision: we will not sacrifice our people to protect short-term margin, because we understand the actual cost of replacement hiring, institutional knowledge loss, and the team morale damage that follows a round of cuts.
Research from Gallup reinforces exactly why that decision matters. Organizations with highly engaged teams see 23% higher profitability, up to 18% higher productivity, and 51% less turnover compared to their less-engaged peers. Disengaged employees cost the U.S. economy an estimated $2 trillion in lost productivity annually. Cutting your way to stability does not produce engagement. It destroys it.
Operational Rhythm means building consistent processes that do not collapse under stress. One of the clearest findings from 2026 labor market research is that the small businesses managing best right now are the ones that built retention habits before they needed them. Commonwealth Payroll and HR describes what they call "labor hoarding": employers who choose to retain strong staff even when conditions slow, because they know that rehiring later is far more expensive than holding on now. That is not hoarding. That is operational intelligence.
Culture Infrastructure means the systems, not just the stated values, that hold a team together. Harvard Business Review research analyzing nearly one million workers across 1,500 firms found that enduring retention comes from integrated talent systems in which hiring, compensation, advancement, and retention practices reinforce one another. A single pay raise does not produce loyalty. A coherent system does.
You cannot meditate your way out of a broken system. The small businesses winning right now built the system first.
Why Larger Organizations Are Losing Ground
The contrast between what the Nav data shows about small businesses and what the broader layoff cycle reveals about large organizations is instructive.
Large enterprises often treat workforce reductions as a default lever in uncertain times. The pressure comes from quarterly earnings expectations, from analysts demanding margin improvement, and from a cultural norm that frames cutting headcount as discipline. What that framing misses is the downstream cost: the institutional memory that walks out the door, the survivor syndrome that quietly disengages the remaining team, and the recruitment cost required to rebuild when conditions improve.
ADP's 2026 HR Trends research found that small business owners' top concerns heading into this year were business growth, labor costs, and talent sourcing, in that order. The businesses that are thriving addressed all three simultaneously rather than treating them as competing priorities. They kept labor costs from spiking by retaining experienced staff, which in turn supported growth, which reduced ongoing talent sourcing pressure.
Addison Group's 2026 national hiring trends analysis identifies what it calls the paradox of the current market: overall growth is slowing, but competition for high-skill talent remains intense. Large organizations responding to the slowdown by cutting are simultaneously making themselves less competitive in the talent market when they need to rebuild. Small businesses that stayed the course avoided that trap entirely.
The Federal Reserve's 2026 Small Business Credit Survey notes that expectations for revenue and employment growth among small businesses declined to their lowest levels since 2020. And yet, the owners who built retention-first cultures are outperforming that headwind. The ones performing best did not wait for conditions to improve. They built the infrastructure to weather uncertainty without abandoning their teams.
What This Means for Your Business Right Now
The Nav findings are not a celebration of cities. They are a data-backed argument for a specific operating philosophy. Here is what distinguishes the businesses at the top of those rankings from the ones at the bottom.
They treated compensation as a strategic investment, not an expense to minimize. The average pay growth of 3.02% nationally is the floor. St. Louis's top-ranked businesses delivered 13.48%. That level of pay growth does not happen because an owner reflexively matched inflation. It happens because the owner decided wages were a retention mechanism, and retention was a competitive advantage.
They refused to let layoff culture become their default. Most layoff headlines treat job cuts as inevitable. The U.S. Chamber of Commerce's Q1 2026 Small Business Index found that concerns about employee retention actually dropped from 17% to 9% between Q4 2025 and Q1 2026, suggesting that the businesses maintaining their teams are experiencing the benefit. The challenge shifted from keeping people to affording their benefits, which is a far better problem to have than rebuilding a depleted team.
They built culture through systems, not slogans. The HBR research on management practices that make ownership cultures work identified three consistent elements in high-retention organizations: financial transparency, empathetic leadership, and rigorous measurement of culture. These are not perks. They are architecture. See The Management Practices That Make Employee Ownership Pay Off for the full research breakdown.
The Cities Leading the Way
A brief look at the top performers from the Nav ranking reinforces what the Leadership OS framework predicts.
St. Louis did not make it to a 96.43 thriving score by accident. The combination of aggressive pay growth and low involuntary termination rates reflects exactly the kind of operational rhythm that produces compounding retention advantages. When your best people stay, institutional knowledge compounds, onboarding costs drop, and team performance accelerates.
Philadelphia's second-place finish aligns with a broader regional pattern: job growth in the metro outpaced surrounding counties over the past five years, according to the 2025 Philadelphia Employment Report. That is a structural outcome of consistent investment in workforce stability.
Jacksonville's third-place ranking was reinforced by a net hiring spike to 5.1% in July 2025, the highest single-month figure in the analysis. When demand arrives, the businesses with intact teams can respond. The ones that cut cannot.
San Jose and Minneapolis-St. Paul led on net hiring growth, which matters for a different reason. These are markets where owners had enough confidence in their infrastructure and team stability to add people when conditions supported it, rather than scrambling to rebuild from scratch.
The Leadership Decision in Front of You
The data from this analysis does not make a complicated argument. It makes a simple one: the businesses that treated their people as a strategic asset during an uncertain two-year period are now structurally ahead of the ones that treated them as a variable cost.
That is a Leadership OS outcome. Decision clarity told them to hold. Operational rhythm gave them the systems to do it without burning out the remaining team. Culture infrastructure made retention something their employees chose rather than something they enforced.
If your business has been operating under the assumption that cutting is discipline and holding is risk, this data inverts that logic. The risk was the cut. The discipline was the hold.
The small businesses in St. Louis, Philadelphia, Jacksonville, San Jose, and Minneapolis-St. Paul did not get lucky. They made a leadership decision and built the operating system to support it. That decision is available to every business owner reading this right now.
Michael D. Levitt is the Founder of Breakfast Leadership Network, a keynote speaker on burnout prevention and organizational performance, and the author ofBurnout ProofandWorkplace Culture. Learn more about the Leadership Operating System at BreakfastLeadership.com/LeadershipOS.
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