labor shortage

When the coronavirus pandemic upended life as we knew it in March of 2020, many small business owners had to make the hard decision to furlough or lay off portions of their workforce. Measures from the Biden administration like the Paycheck Protection Program (PPP) helped certain businesses retain their employees on a full or part-time basis and mitigated the large loss of jobs, but it wasn’t quite enough to save millions from becoming unemployed.

Labor Shortage

With the mass rollout of COVID-19 vaccines well underway in the United States, small businesses are coming back to life and making plans to hire back many of the workers they lost in the previous year to fill the pent-up demand of their customers. While record numbers of jobs were created during the start of 2021, many small businesses are still struggling to hire enough workers to get back up to speed. This is particularly true for retail operations, restaurants and other foodservice businesses, and even professional service businesses like data science and information technology. More than two-thirds of small businesses reported having a hard time finding qualified employees according to a report by the Wall Street Journal. 44% of small business owners said job openings went unfilled in April, according to the National Federation of Independent Business (NFIB).

In this article, we discuss some of the reasons why workers are still unwilling or unable to return to work and how small business owners can mitigate the effect of the labor shortage on their operations.

What is causing the labor shortage?

Latent fear of contracting COVID-19

One of the most obvious reasons the current pool of available workers is reluctant to return to the workforce is a continued fear of catching the coronavirus while on the job. Even though almost 63% of the adult population has received at least one vaccine (as of the writing of this article), there are many who have yet to receive a dose or who don’t feel safe returning to work until they’re fully vaccinated two weeks after their second dose.

This is especially true for those people who work in jobs that require a high amount of interaction with other people like retail, food service, and even healthcare. Even if people are half or fully vaccinated, workplace settings where patrons are not required to wear a mask and are inherently riskier are not attracting workers.

Dis-incentivization as a result of government programs

At the height of the pandemic as workers were being laid off in droves from their jobs and were suffering to make ends meet, the federal government instituted a number of measures in the CARES Act. One of those was an unemployment insurance premium, which paid an extra $600 on top of the usual unemployment benefits paid out. The length of time that these jobless benefits were paid out was also extended. While the $600 premium expired, the American Rescue Plan included a similar $300 in extra compensation that extends until September 6th, 2021.

What does this mean? Workers are making more than they would have previously at their job and are thus disincentivized from returning to the workforce. This gets more complicated because this only includes cash compensation and doesn’t include non-cash compensation like benefits and perks, but on a basic level, workers are making more money staying at home than they would if they returned to work. This presents a problem for small businesses that can’t afford to meet the level of compensation unemployed workers are currently making.

Importantly, this is being mitigated in at least two ways. First, the Biden administration made sure that these employment benefits are cut off if a candidate rejects a qualified job offer. Additionally, half of the states in the US are planning to end the enhanced unemployment benefits early as a result of sustained lobbying by small business organizations and the US Chamber of Commerce. These measures are attempts to incentivize workers to seek out and accept job offers so that they have a stable wage and businesses have enough workers to meet the uptick in consumer demand.

Workers have different expectations

As a result of the pandemic, ways of working have been changed fundamentally. Virtual or remote work has become normalized, digital processes have become more critical, and sustained labor shortages have forced (especially larger companies like Amazon and McDonalds) to implement higher wages. Candidates applying for jobs at small businesses have seen these practices implemented in the wider labor market and are now negotiating for them in their discussions with potential employers. More and more workers want the ability to work from home, are demanding a higher market wage, and negotiating more robust benefits like childcare, just to name a few of the new dynamics to an increasingly competitive recruiting environment.

How can small business owners combat the labor shortage?

While larger corporations have deep pockets and can both weather and respond to the labor shortage relatively easily, small businesses have a harder time. Not having enough workers is a more critical hit to regular business operations, especially service businesses, and have less bandwidth to hire contract workers or quickly raise cash and non-cash compensation. That said, there are a few strategies that can be implemented to lessen the impact of the labor shortage on your business.

  • Innovate your recruitment processes: Traditional small business recruitment methods won’t cut it in a more competitive job market. Consider leveraging digital recruitment tools like LinkedIn Jobs, Indeed, and ZipRecruiter to reach a broader audience of potential candidates. These tools will even advertise your job postings, target ideal candidates based on your requirements, and provide best practices for job descriptions.
  • Get your current employees involved: One of the best ways to get more employees and candidates quickly is to implement a referral program. Incentivizing your current workforce to use their network of professional and personal relationships can be an excellent way to find a higher number of quality candidates because your workforce understands the profile of candidates that would succeed in the job due to their experience doing the job. Additionally, your current workers will also act as a great filter to find candidates who also match the “fit” and culture of your workplace.
  • Consider implementing temporary or permanent compensation boosts:If you’re in a good financial position, a very direct way to increase the attractiveness of jobs at your business is to implement enhanced cash and non-cash compensation policies. This can include everything from higher weekly wages to signing bonuses to better benefits. Evaluate what is affordable based on your budget and long-term financial planning and make plans for implementing this both for new and existing employees. A big mistake made by poor managers is implementing enhanced compensation plans for only new employees, which creates discord within your existing workforce and causes even bigger problems than a labor shortage.

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