Labor Issues Continue to Impact the Small Business Industry in 2023
Despite record job growth and employment rates, small businesses across the country are struggling to attract and retain talented employees. As part of the quarterly Insight Report, which examines the state of the industry and the sentiment of business owners and brokers, BizBuySell asked owners if they believed the labor market was improving. 50% of respondents reported it is not improving, and believe it continues to be a challenge to hire and keep employees at a reasonable rate. In fact, 36% of business owners shared they are not currently operating at full staff. While there are a variety of reasons, the two primary points of contention that owners report are difficulties hiring because of a lack of applicants (48%) and increased payroll costs (26%). With 44% of business owners looking to hire more employees this year, staffing issues will remain top of mind for small business owners.
Small Businesses Challenged by Labor Market
The ADP Research Institute® in collaboration with the Stanford Digital Economy Lab’s most recent employment report, shares that job gains in February remain strong, with private employers adding 242,000 jobs. Meanwhile, the Bureau of Labor Statistics reports employers added 311,000 jobs in February, a decrease from January but still indicating a strong labor market for private sector and government employees.
Amid the continued strength shown in the labor market, there appears to be one particular weakness: small businesses. According to ADP, business establishments employing 49 or fewer employees have lost jobs every month since August 2022. In February 2023, small businesses saw 61,000 fewer jobs, with over 90% of the decline coming from businesses with 19 or fewer employees.
Construction Industry Labor Issues Affected by Rising Interest Rate Hikes
The sector seeing the biggest labor challenges? Construction. ADP's report revealed a 16,000-job reduction in the construction industry for small businesses. Rising costs due to supply chain interruptions and inflation are making it more challenging to do business, and with fewer people opting to enter skilled trades, the search for skilled labor has been more difficult. As the construction industry has a direct connection to the housing market, any changes to the interest rate have a significant influence on the sector. With the Federal Reserve indicating that it might be necessary to raise interest rates more than initially believed to bring down inflation, labor issues in the industry could remain. Despite current issues, the construction industry is projected to grow, fueled by the Infrastructure Investment and Jobs Act and the CHIPS and Science Act of 2022. For business owners looking to boost the value of their construction company, investing in and developing a skilled workforce is key.
Strategies for Navigating the Current Labor Market for Small Businesses
For small businesses eager to hire in today’s economic climate, owners will need to get creative. While many business owners have reported that reduced hours and closing shop on certain days have helped them navigate the current labor landscape, there are several strategies that businesses owners can take into consideration. For businesses unable to raise pay for employees consider creating a positive work environment with a flexible work schedule, providing opportunities for development and growth, and investing in new technologies to streamline administrative processes. Business owners that prioritize hiring and retention can create a resilient and sustainable workforce to manage the current labor market.