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Small Businesses Have a Hiring Problem

A year ago, small businesses were struggling to stay alive. The COVID-19 pandemic forced numerous companies to close their doors at least temporarily, and most of those that remained open still were impacted by the general strain on the economy. The result? Millions of lost jobs and the highest unemployment rate since the government started collecting such data in 1948.

A year later, and small businesses have a very different type of problem: hiring. They need workers, but they simply cannot find them.

In its May 2021 report, the National Federation of Independent Business (NFIB) reports that a record-high 48% of small business owners reported unfilled job openings — “the fourth consecutive month of record-high readings for unfilled job openings and … 26 points higher than the 48-year historical reading of 22%.”

Read on as we explore more findings from the report and explain why small business hiring is so difficult right now.

The May 2021 NFIB Report

Overall, the May 2021 NFIB Report was good, albeit not great. A few of the highlights:

  • The Optimism Index came in at 99.6. That’s ahead of last May’s 94.4, but down slightly from April’s 99.8. It’s also the first time in 2021 that the index actually declined. (And for comparison’s sake, all of 2017-19 was spent above 100.) The NFIB notes that five forward-looking components are “flashing yellow, indicating owners have waning confidence that the economy will be better by year end.”
  • Fifty-nine percent of respondents reported capital outlays in the last six months, up 2 points from April. “This takes spending back into the range experienced for the last few years which was the best capital investment period in recent history,” the NFIB says. The most common reported expenditure was new equipment (44%), followed by acquiring vehicles (24%) and improving/expanding facilities (16%).
  • Adjusted for seasonality, a net 7% of owners reported higher nominal sales over the past three months. That’s 4 points better than April, and back to pre-COVID sales activity.
  • The single most important problem that business owners identified was quality of labor. Twenty-six percent of respondents pinpointed that issue. That comes in ahead of taxes (22%) and government regulation (13%), as well as a host of other problems.

And that last point nods to the issues small businesses are having with employment.

Small Business Hiring Woes

As mentioned above, the percent of small businesses reporting unfilled job openings jumped to 48% in May — up 4 points from April. Importantly, that marks the fourth consecutive monthly record-high reading for unfilled job openings.

“Small business owners are struggling at record levels trying to get workers back in open positions,” NFIB Chief Economist Bill Dunkelberg says. “Owners are offering higher wages to try to remedy the labor shortage problem. Ultimately, higher labor costs are being passed on to customers in higher selling prices.”

The biggest problem at the moment is a lack of qualified applicants. Ninety-three percent of small business owners who are hiring or trying to hire say that there are few or no “qualified” applicants for the roles they were trying to fill in May, up 3 points from April.

The most straightforward way that small businesses have to remedy the labor shortage problem is raising compensation. And the NFIB’s report shows that’s exactly what they’re trying to do. On a seasonally adjusted basis, 34% of small business owners reported raising compensation. That’s up 3 points from April, and the highest level in the past 12 months. Meanwhile, 22% said they planned to raise compensation sometime in the next three months.

And while we previously mentioned that 26% of business owners reported quality of labor as their most important problem, another 8% cited labor costs. That means more than a third of small businesses see hiring as their biggest hurdle.

Is Your Small Business Experiencing Hiring Issues?

If these struggles sound familiar, McManamon & Co. can help.

No, we’re not a job recruiting firm — but we do provide a full suite of services to small and midsize businesses, including a wide range of consulting topics that includes how to make yourself more attractive to job candidates. So we can help you determine whether you have the room to improve pay or add more benefits, and where necessary, show you how.

Learn more about the ways McManamon & Co. can help your business. Call us at 440.892.9088 or contact us online today.

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