Next week is National Small Business Week, but owners aren’t likely to spend it celebrating — they’ll be too busy trying to hire workers or keep the ones they have from defecting to bigger firms.
With a 3.6 percent unemployment rate, the lowest since December 1969, the labor market continues to thrive. “This is a worker’s job market,” said Moody’s Analytics Chief Economist Mark Zandi.
But Zandi adds that this is less-than-good news for the small companies that comprise the vast majority of U.S. businesses. “The risk or the concern would be at some point that businesses start to come under financial pressure, particularly smaller ones,” he said.
“Owners are trying to hold on to the employees that they have in a highly competitive labor market,” a March survey from the National Federation of Independent Business said.
They’re not always succeeding. The survey found that although 60 percent of respondents said they were hiring or trying to hire, 54 percent found few to no qualified applicants for those open positions. More than one in five said difficulty in finding workers was the top problem facing their business, and nearly two in five said there were current job openings at their companies they could not fill.
“Small businesses have fewer resources to throw at recruiting and training, so it’s harder for them to get the labor they need,” said Josh Wright, chief economist at iCIMS. Bigger companies also can generally offer more attractive benefits packages, flexible parental and sick leave policies and opportunities for advancement.
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Wage and salary data from Glassdoor.com found that, although wage growth at the smallest companies is accelerating, their median base pay still trails. For companies with 50 or fewer workers, the median is $47,864, and for those with between 51 and 100 employees, it is $49,653. By comparison, median base pay at employers with more than 5,000 workers is $53,225.
"In general, we’d say one of the largest challenges facing small employers is finding workers, and that’s reflected in the data we’re seeing,” said Daniel Zhao, Glassdoor senior economist.
“Small businesses often are limited in the amount of wage increase they can offer, so the fact that we’re seeing rising wages is really a sign of how tight the labor market is and how hard it can be for small businesses to find qualified workers,” he said.
Many also have been stretched thin by forces outside their control. According to Bank of America’s Spring 2019 Small Business Owner Report, two-thirds are worried about the economic impact of the current political environment.
When the last survey was conducted last fall, researchers found that although small business owners’ optimism about the local and global economies had started to dim, their expectations for the economy strengthened, with 55 percent anticipating improvement. In the new survey, that has reversed: A slim minority of 48 percent think the national economy will improve, while global and local expectations continue to fall, as well.
Economists say the impact of President Donald Trump's tax, trade and regulatory policies is magnified for small businesses. Bank of America’s survey found that 43 percent of respondents are concerned about tariffs and trade policy.
Small businesses, especially those in the goods-producing sector, struggle more with higher input costs, a ripple effect of trade sanctions. “Smaller companies don’t have the contacts or the relationships. It’s not easy for them,” Zandi said, pointing out that something as simple as a language barrier could stymie a mom-and-pop business trying to from switch importing goods from China to another country. “Things like the trade war really complicate things,” he said.
And the promised corporate tax cuts may have been more hype than hiring accelerator. Nearly 60 percent of Bank of America survey respondents expected the Tax Cuts and Jobs Act to be a “game changer” and 45 percent expected it would have a positive impact on their business (respondents could choose more than one response). Now that reality has set in, 35 percent said it actually was a game changer; fewer than three in 10 said it has been positive for their business.
According to the Paychex IHS Markit Small Business Employment Watch, job growth at small businesses has weakened slightly over the course of 2019. “The growth trend has definitely come down, month after month after month,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex.
Since small companies are more nimble in their response to market conditions, this slowdown could signal that slowing growth could spread in the future, Fiorille said.
“We think it is a leading indicator because smaller businesses can be much more flexible and can react more quickly,” he said.