Small Business Labor Shortage

Supply chain disruptions have become the favorite “go to” explanation for the difficulties experienced by small businesses. A shortage of microchips holding up automobile and durable goods productions, of lumber production, produce, and more, the list is long. Many small firms are experiencing problems restoring operations, many in the “supply chain” of yet another firm. 

But even if needed supplies or goods are available, one more input is needed that is also in short supply – labor. The percent of small firms reporting open job positions reached a 47 year high at 48% in May’s NFIB Small Business Economic Trends survey. Over 60% of business owners report a shortage of labor, over 20% characterizing the shortage as “critical” to business operations. Over 80% reported a loss of sales due to the labor shortage, 19% experienced serious losses.

Solving the labor shortage problem will take time. Even though there are about as many unemployed people as job openings at firms, they do not match up perfectly geographically or by skill requirement. People move, but not enough in a year to significantly dent the gap between available workers and job openings. But there are also ongoing childcare issues and health concerns that continue to keep otherwise employable people on the sidelines. The government’s stimulus programs have also sent a lot of money to consumers, directly and in supplemental unemployment benefits. There are over 14 million people receiving some sort of unemployment benefit, federal and state. Before Covid-19, about 2 million were receiving benefits. All this income induces many to delay seeking a paying job, which often pays less than unemployment benefits. Most of these programs will cease in September.

The labor force (number of employed plus number seeking employment e.g. unemployed) has also not increased as expected, reducing the supply of available workers. With strong GDP growth, it remains a bit of a puzzle that total employment is still lower than pre-Covid-19 levels. Record percentages of owners report raising worker compensation to attract workers but unless there is growth in the labor force, a hiring success will come at the expense of another employer and not increase total employment. Growth will come from an increase in the labor force and a reduction in the number of unemployed.

To deal with the shortage, 63% have raised wages, 13% have increased paid time off and 13% have instituted a signing bonus. Fifteen percent instituted bonuses for successful referrals and 15% offered improved medical benefits. Owners are working more hours themselves (79%), 41% offered more hours of work to part-time employees and 60% to current full-time workers. Thirty percent adjusted hours of operation to fit the available workforce and nearly a quarter reduced product offerings. To round out the variety of efforts to deal with the worker shortage, 29% introduced new labor-saving technologies. 

Overall, employers have tried just about every possible measure to improve the labor shortage problem. These problems will be resolved, particularly when potential workers begin to feel even safer about returning to work and schools re-open to alleviate the childcare problem.

Number of people claiming unemployment benefits, by program

Labor Department