Small Businesses Adapt to Changing Job Market: Slowdown in Employment but High Demand for Skilled Workers

In March, a slowdown in employment activity was revealed by the monthly jobs report from the National Federation of Independent Business (NFIB). This is reflected in a seasonally adjusted net 11% of small business owners planning to create new jobs in the next three months, which is down one point from February and the lowest level since May 2020.

Despite this slowdown, job openings on Main Street have returned to pre-pandemic levels. However, small business owners remain competitive when it comes to retaining and recruiting employees. In fact, 37% of all small business owners reported job openings they could not fill, which is the lowest reading since January 2021.

One major challenge facing small businesses today is labor quality. A net 18% of small business owners reported labor quality as their top operating problem, which is a two-point increase from February. While labor costs have decreased slightly, only 10% of business owners reported it as their most important problem.

On the compensation front, small business owners continue to raise wages for their employees. A net 38% of small business owners reported raising compensation in March, which is up three points from February’s data. Looking ahead, a net 21% plan to raise compensation in the next three months, reflecting a two-point increase from February’s data.

The NFIB report also provides insights into job openings by sector. For example, job openings for skilled workers are at their highest level since June 2020 at 31%, while unskilled labor has decreased significantly with only 14%. Job openings in construction have decreased dramatically with almost half of construction companies unable to fill available positions. The transportation, construction and services sectors have the highest number of job openings overall while finance and wholesale sectors have seen a decline in job opportunities.

Overall, these findings highlight the challenges that small businesses face in terms of employment and compensation but also underscore their resilience and adaptability in response to changing market conditions.