The State of the Small Business Labor Market


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Posted In: Workforce Insight

May • 31 • 2017

It’s getting harder for small business owners to find qualified employees. Data shows that the labor market is tightening for businesses of all sizes, but small businesses may face a greater struggle as they compete with multi-million-dollar companies for in-demand talent.

 

What the data shows

 

The slow constriction of the labor supply has been going on since the 2008 recession began to ease. A 2013 survey by staffing agency Robert Half found that when asked to identify their greatest hiring and management challenge, 60 percent of owners and managers of businesses with fewer than 100 employees said it was finding skilled workers.

 

The unemployment rate now hovers around 4.8 percent, and the February 7, 2017 Job Openings and Labor Turnover Summary reports that the number of job openings at businesses of all sizes remained steady at 5.5 million. Hires were little changed at 5.3 million, leaving a gap of around 200,000 unfilled jobs.

 

One result is that while labor’s share of national income had been flat for most of the post-recession period, according to a Forbes magazine report, small business owners are now raising compensation rates. But that may not be having much impact, because rising costs of benefits such as health insurance are swallowing larger chunks of paychecks, leaving employees with no improvement in their take-home pay.

 

The skills mismatch in small businesses

 

Perhaps most significant is a disconnect between what employers need and what job seekers have. Over the last few years, there has been a steady increase in the credentials needed to qualify for many positions. Employers are seeking out college graduates even in positions where a high school diploma has traditionally been the requirement. A Georgetown Public Policy Institute report projects that by the year 2020, nearly 65 percent of all jobs will require postsecondary education and training, up from about 34 percent in 2013 according to the Bureau of Labor Statistics. If the graduation rate remains constant, the United States will be short five million qualified workers by 2020.

 

How is the labor market affecting small business?

According to the December 2016 Small Business Economic Trends report from the National Federation of Independent Businesses (NFIB), 16 percent of small business employers plan to increase employment, and 23 percent see now as a good time to expand.

 

The same survey found that 51 percent of small business employers reported hiring or trying to hire new employees. Of those, 44 percent reported few or no qualified applicants for the jobs they were trying to fill. Almost 30 percent found that they could not fill the job openings at all.

 

The problem is greater in some industries than others. The manufacturing and health/social assistance industries reported the highest level of recruiting difficulty, according to the June 2016 Society for Human Resource Management (SHRM) survey. But the lack of qualified applicants extends beyond specialized skill sets.

 

In other words, small businesses must deal with a widening gap between what they expect their employees to be able to do and which skills those employees actually have.

 

Candidates lacking foundational skills

 

That survey also found that candidates are missing even basic job skills — 59 percent of HR professionals say job applicants fall short in math, reading, and writing, while 84 percent say candidates lack applied skills such as critical thinking, problem-solving, leadership, teamwork, and professionalism.

 

In a small business with only a handful of employees, leaving a position vacant may mean serious consequences for the business, and by extension, for the economy as a whole. A 2014 study from the hiring platform Indeed estimated that unfilled positions cost U.S. businesses nearly $160 billion per year. These vacancies lead to lower productivity and decreased employee satisfaction, as existing employees are asked to shoulder more work, or work that is outside their area of expertise.

 

A December 2016 opinion poll conducted for Small Business Majority by Greenberg Quinlan Rosner Research found that 29 percent of small business owners say their current employees do not have the education, experience, or training to be eligible for promotion. Employee motivation and engagement suffer as a result.

 

What are small businesses doing about it?

Employers have found various ways to solve this problem. According to the Bank of America Spring 2016 Small Business Owner Report, 49 percent of small business owners plan to take on more tasks themselves to make up for less-skilled employees. Thirty-two percent are providing training or education programs, and 5 percent are offering relocation bonuses to qualified candidates outside their geographical area.

 

And many of those are finding that competency-based degree programs that focus on mastering skills rather than adding up credit hours are proving effective at helping employees quickly gain the specific skills essential to the job. For example, Community Blood Center/Community Tissue Services, a nonprofit based in Dayton, Ohio, is one small employer using its tuition assistance program to partner with College for America to expand build skills in its workforce.

 

As Chief Administrative Officer Don Frericks said in this profile, “Every time one of our employees receives a degree, that means they have better critical thinking skills. They have the ability to contribute more from a problem-solving standpoint. It means that hopefully, their career growth has developed to a higher level and that the chances of them staying with us and maybe developing a career are greater.”
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Emma Gallimore is a freelance writer with a degree in journalism from the University of Maine. She reports on trends affecting the education, business, health, and technology sectors.