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Small Firms Find Tight Labor Market A Costly Challenge

The big news in jobs this past week came from payroll firm ADP, which found the U.S. private sector added 179,000 jobs in November.

ADP described the figure as “strong” and in line with analyst expectations, with mid-sized companies adding the majority of the positions (119,000). The services industry led the way, with the professional and business services sector adding 59,000 jobs.

How did small businesses fare in job growth last month? While entrepreneurs continue to reflect record-level optimism, their top concerns are increasingly including the tight labor market and the importance of retaining staff in such a climate.

“It’s a very competitive environment for talent, for top talent, for all talent,” said Small Business and Entrepreneurship Council CEO Karen Kerrigan in a recent interview for Marketplace. And while the services industry led job gains for November, Kerrigan added that this sector is facing pressure to entice new workers and retain existing talent by adding expensive benefits more often linked to desk jobs at larger corporations.

One executive, Jeff Cartwright, vice president of data research firm Morning Consult, told Marketplace that businesses must be “super, super active in recruiting the best talent” in today’s job market. For smaller businesses and startups, Marketplace noted, it’s no longer enough to offer “cool” perks like break room games and happy hours.

Companies reliant on minimum wage staff could be particularly vulnerable to these challenges, said Center for Economic Policy and Research Senior Economist Dean Baker in another interview with Marketplace.

“We probably will see a lot of low-paying businesses, a lot of restaurants, maybe some retail stores, they’re going to go out of business because they can’t get the workers they need,” he said. “And that’s the way the market economy works, for better or worse.”

ADP wasn’t the only firm to release new insight (and data) into the current jobs market. Wells Fargo, Gallup, CBIZ and Paychex are among the publishers of reports on how small businesses are managing the hiring challenge.

According to ADP’s report, 46,000 jobs were added by small businesses in November. The figure pertains to businesses with fewer than 50 employees, and reflects an increase from 30,000 jobs added in October. ADP noted that the data is in line with monthly averages for the year, though researchers emphasized that small business owners may also be more cautious because the tight labor market is forcing them to pay more to attract new staffers.

Bank of America’s Small Business Owner Report found that 27 percent of small firms plan to hire in 2019. The survey revealed a range of data points that reflect SMBs’ optimism: most SMBs expect both national and local economies to improve, and for their revenues to increase in the coming year. But the hiring landscape has forced entrepreneurs to introduce new measure to attract talent, including offering flexible hours (25 percent), increasing salaries (17 percent) and using an external recruiter (9 percent).

Eighteen percent of small businesses surveyed by Gallup and Wells Fargo say hiring is their top challenge, beating out taxes, government regulations, cash flow management and customer attraction as the top issue for small business owners. According to Gallup’s recent report, hiring emerged as the biggest challenge for SMBs previously this year, reflecting the long-lasting impact a tight labor market has on the small business community.

Six months of consecutive declines for the Paychex | IHS Markit Small Business Employment Watch index show just how tight the labor market has become for small businesses throughout the course of 2018. According to Paychex, the index hit its lowest level since 2010 and, as a result, small business owners are bumping up wages. Paychex data found that hourly earnings have grown for the third-straight month, rising 2.38 percent and averaging $26.89 per hour for November.

According to CBIZ’s Small Business Employment Index, 0.48 percent more jobs were added at small and micro-businesses in November. The figure represents a “flattening” of hiring growth in the final quarter of the year. CBIZ Employment Benefits Executive Vice President Philip Noftsinger said in a statement that the figures are in line with historical trends. “It’s not uncommon for small businesses to resist hiring seasonal employees too early, in order to gauge consumer sentiment and demand during this high season,” he said.

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