Small businesses appear to be struggling more to hire workers than larger companies as overall job openings continue to outpace people looking to fill those positions.
Relatively small companies, those with fewer than 250 employees, accounted for nearly 80% of the 10.3 million job openings reported by the U.S. Bureau of Labor Statistics at the end of October, according to an analysis by Aneta Markowska, chief financial economist at Jefferies. The small-business sector has 3 million more job openings than before the COVID-19 pandemic. Conversely, large companies have about 250,000 more job openings than in early 2019, Markowska said.
With inflation still persistently high, the Federal Reserve likely to hike rates into 2023 and large tech companies significantly cutting their workforces, smaller companies could continue to struggle to hire workers.
"Small businesses have had a very difficult time finding workers," said Jeffrey Roach, chief economist with LPL Financial. "With the labor force still amazingly tight-headed into an economic slowdown, I expect this will continue."
Smaller companies might be able to compete with larger firms on wages, which continue to rise. Still, they cannot offer comparable benefits, particularly health insurance, which has seen significant cost increases, Roach said.
"Smaller firms cannot offer the same type of benefits and perks as the larger firms," Roach said.
The Fed's monetary policy shift has also exacerbated the staffing divergence between small and large firms, as the central bank began to aggressively hike rates in March after two years of keeping its benchmark interest rate near zero, Markowska said. Larger firms are typically more sensitive to financial conditions, as equity valuations and credit spreads likely reflect expected interest rate increases before the Fed implements them.
"Small businesses, which tend to borrow from banks and have more floating-rate exposure, have yet to feel the full brunt of the tightening cycle," Markowska wrote in a Nov. 30 note. "We believe that their profits will come under pressure in [the first quarter]. Until then, it's unlikely that we'll see large declines in job openings.
Adapting to less
For at least the past two years, Kraus Department Store, a hardware store in Erie, Pa., has consistently had one or two open positions that it has been unable to fill, said Lisa Fischer, the store's office manager.
"Getting people with the skillset we're looking for has been very hard," Fischer said. "When we do get somebody, they don't last."
The store, which first opened in 1886 and has about 15 employees, has remained open, often with limited staff, as employees have adapted.
"It's been an issue, and it will likely continue to be an issue," Fischer said.
While Fischer said the hardware store has been able to adjust, many smaller businesses are struggling as workers choose to join larger companies with more robust compensation packages, according to Holly Wade, executive director of the National Federal of Independent Business' Research Center. The issue is starting to eat into smaller companies' profits.
"They're losing out on sales opportunities and have to adjust business operations to accommodate for it," Wade said.
With fewer workers, smaller businesses have begun limiting their hours and days of operation. Some have begun scaling back their services and goods sold, Wade said.
"These companies are paying the price for not being fully staffed," Wade said.