Jul 27, 2018

Tightening Labor Market Slows Job Growth and Slims Paychecks

The monthly Paychex | IHS Markit Small Business Employment Watch for June found small business job growth decreased along with wage growth. In an ever-tightening labor market, it’s no surprise job growth continues to see a negative trend, but the real shock comes from the dip in wage increase

“Small businesses have a little bit of a harder time hiring workers in a tight labor market so you’d expect that to be going up,” said Paychex president and CEO Martin Mucci.

21% of small business owners admit that finding qualified workers remains their number one problem, so it’d make sense to lure skilled workers with promises of fat paychecks. So why aren’t smaller companies increasing wages, as logic would suggest?

When asked this question, 65% of small business respondents answered that they lacked profits to increase wages. “We’d expect that the wages will have to go up at some point, but at least at this point a number of small businesses didn’t think they could do it,” said Mucci.

But apparently businesses aren’t “lacking profits” to finance other capital investments. Instead of raising wages to attract top talent, businesses are investing in automation and additional benefits to entice qualified workers, according to a Paychex survey.

At first this might seem like an odd HR move, but research suggests employees prefer additional benefits to a pay raise. Go figure!

Given this recent focus, it’s possible that wage growth may be slowing because small businesses are jumping on the benefits bandwagon. “Wages have not been the priority at this point. I would assume as small businesses, like any other, need to find exact talent, they may have to increase certain wages for specific positions,” said Mucci.

While it’d be sweet and convenient to have the profits to hire additional talent, sometimes it’s strategically necessary to use a small business loan to solve immediate hiring needs. Regardless of the process, small businesses will need to find the delicate balance between investing in benefits and increasing wages in order to solve rising hiring challenges.

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About the author

Jesse Sumrak
Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.

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