Small Business Labor Market Trends & Outlook 2025
The Department of Labor recently released January jobs numbers, showing that employment rose by 143,000 in January, with the unemployment rate edging down to 4.0 percent. With small businesses comprising 99.90% of U.S. businesses according to the Small Business Administration, this tight labor market has particular significance for Main Street. These small businesses–defined as those with 500 or fewer employees–have demonstrated remarkable growth, with job creation increasing over 60% in the last 20 years. BizBuySell’s Insight Report, which tracks the health of the small business for sale marketplace, reveals that while Main Street businesses continue to face staffing and payroll challenges, there are encouraging signs of adaptation and resilience.
Small Businesses and Rising Wages
This past year has seen earnings increase by 4.1% according to the Department of Labor. When BizBuySell surveyed business owners about reasons business expenses have increased, 43.74% cited payroll. This comes amid widespread minimum wage increases – 22 states and over three dozen cities and counties raised their rates in 2024, with more than 20 states and 40 localities set to implement further increases in 2025.
Yet the impact of these wage increases tells a nuanced story. Half of small business owners (50.3%) report no impact from minimum wage changes, while 8.7% cite a positive impact and 41% note negative effects. This represents an improving outlook from late 2023, when 45.96% of owners reported negative consequences from rising wages. The substantial portion reporting no impact suggest several factors at play: many businesses are already paying above minimum wage, some operate in sectors where wage pressures are less significant, and other businesses have adapted their business models.
Main Street Businesses Navigate a Tight Labor Market
With unemployment at four percent, small business owners face ongoing challenges in recruitment and retention. The tight labor market has created a competitive environment where workers have more options, often leading to increased turnover. BizBuySell’s Insight Report has tracked this challenge over the past two years, with the percentage of owners reporting no improvement in the labor market rising from 43.43% in early 2023 to a peak of 55.36% in Q3 2024. While this figure has recently decreased to 50.5%, it suggests a small business labor market in transition.
Despite these staffing challenges, strong consumer spending has helped bolster business performance. The final quarter of 2024 saw consistent monthly increases in consumer spending: +0.5% in October, +0.6% in November, and +0.7% in December. While January 2025 saw a modest 1% monthly decline in retail spending, sales remained 5.4% higher than the previous year, demonstrating sustained consumer resilience. This economic strength is reflected in business performance, with 48.33% of owners reporting improved sales, 32.65% maintaining steady business levels, and only 19.02% experiencing declines.
Looking Ahead
Small business owners are showing measured optimism about staffing as they look toward the remainder of 2025. The majority (51.35%) anticipate maintaining their current workforce, while 41.73% plan to increase hiring—nearly six times more than those planning reductions (6.92%). This represents a slight shift in hiring intentions from Q4 2023, when 45.36% of businesses planned to expand their workforce.
This hiring outlook represents a slight shift from late 2023, when 45.36% of businesses planned to hire more employees. The modest decrease in hiring intentions aligns with recent Bureau of Labor Statistics data showing downward revisions in employment numbers and moderate wage growth. However, the fact that over 93% of businesses plan to either maintain or grow their workforce suggests a fundamentally stable business environment.
The trend toward workforce stability is particularly notable given the broader economic context. With over 93% of businesses planning to either maintain or expand their staff, small business owners are demonstrating confidence in their operational models despite ongoing labor market challenges. This aligns with the improving sentiment around minimum wage impacts and steady consumer spending growth observed through late 2024. Main Street businesses have an optimistic outlook for 2025 with strong confidence and opportunities for growth, while simultaneously balancing the uncertain economic landscape in the year ahead.