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The small business labor dilemma

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July 25, 2022
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Labor markets remain extremely tight, with over 11 million jobs but only 6 million unemployed. A sample of 300,000 NFIB member firms has reported job openings at record levels for 48 years, with 51% reporting job openings that are difficult to fill. Labor force increases are reported by record high percentages of employers trying to fill open positions and keep the workers they have. Quitting rates are historically high as workers see opportunities to improve their circumstances.

For most small firms, labor costs are the largest operating expense. The percentage of employers reporting higher compensation for their employees rose steadily from 2009 to 2020. The frequency of compensation benefits fell sharply with government shutdowns, but then rose to record highs 48 – year old. Reports of higher sales prices followed a similar path but have remained higher in frequency than compensation gains, reversing much of the historical relationship. Reports of higher prices are well ahead of reports of higher compensation, suggesting that other forces are pushing up prices, such as supply shortages and energy costs.

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The percentage report “labor costs” as their single most important problem

NFIB Small Business Economic Trends Survey

Labor costs have not been a major problem for most of the past 48 years (Chart 1). However, over the past two years, it has risen to the highest level of concern in the 48-year-old. Until inflation became the biggest problem, the availability of skilled workers held the top spot on the list of most important problems. The lack of skilled workers (applicants) was and is the driving force behind the increase in reported compensation earnings. While job openings remain at historically high levels, so does the percentage of employers trying to hire and the percentage reporting few or no qualified applicants. Sixty-one percent (92 percent of those hiring or trying to hire) of employers reported few or no qualified applicants for the positions they were trying to fill. Thirty-three percent of employers reported few qualified applicants for their open positions and 28 percent reported none (1 point below the 48-year record high). A number of factors can “disqualify” an applicant including lack of experience, necessary skills or training, poor social skills or appearance. Remember, this is Main Street, not Silicon Valley, a tech-driven place.

The market is currently experiencing a supply problem, not enough skilled workers, that is not being quickly resolved through the role of higher wages attracting more workers, as market imbalances are resolved. Still half a million short of the 2020 employment level, owners see value in adding new workers, producing more output and serving customers. There are many forces at play, the virus, government benefit payments, and demographics (eg, retirement and deaths) to name a few. It’s a healthy process, but a recession will completely change the picture as job openings disappear and workers become unemployed.

Changes in Labor Rates and Compensation

NFIB Small Business Economic Trends Survey

Unfilled job openings

NFIB Small Business Economic Trends Survey



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