Forecast 2000

LABOR & BENEFITS. Unemployment will climb in the first quarter of 2002 as corporate layoffs continue. Sadly, that's good news if you want to hire the skilled employees you couldn't get during the boom years. Salaries will be slowing too, with increases for small businesses averaging about 4% in 2002, compared with annual hikes of 7% over the past few years, says Daniel Moynihan, principal of Compensation Resources Inc., a compensation consulting firm in Upper Saddle River, N.J.

But don't get too smug. Even as salary costs moderate, you'll face huge jumps in your health-insurance premiums. Brace yourself for increases next year ranging from 20% to 50%. For some small companies, hikes will be steeper still. Robert Klein, who owns a seven-person labor law practice in Highland Park, Ill., faces a 60% hike for 2002. That's on top of 25% to 35% average annual increases over the past five years. "It's our single largest cost component after salaries," he says. Reluctant to cut benefits, Klein is shopping around for alternatives such as a Medical Savings Account in which employers contribute a fixed amount to employees' accounts. If employees don't spend the money on medical needs, they can pocket the cash. But if costs continue to rise at this pace, he says he'll have to cut staff.

To save on health-care costs, Larry Levitt, vice-president at the Henry J. Kaiser Family Foundation, recommends that small companies form purchasing pools (such as PacAdvantage in California) to increase bargaining power. Or consider using an online broker like ehealthinsurance.com or Quotesmith.com to scout out discounts and get a wider array of choices.