current job market

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The U.S. Small Business Office of Advocacy reports that there are more than 33 million small business owners in the United States, meaning small and midsize businesses (SMBs) make up 99.9% of all U.S. businesses. So it’s no surprise that small business owners feel the effects of the current job market, hiring trends, and changes in the economic well-being of the country before large corporations. In this article, we explore the job market today, its impact on small businesses, and share some tips on how small business owners can navigate today’s employment trends.

What’s new in the job market?

The current job market is promising for the economy. While the unemployment rate of 3.7% reported in May of 2023 is above the expected rate of 3.5%, unemployment levels have actually declined by 310,000 people. The labor force participation rate of 62.6 percent, which is the highest it has been since pre-pandemic figures. Other key market indicators, like the increasing number of new job openings and the decreasing amount of reported layoffs, show that the market remains strong.

The data used to describe the current job market primarily comes from two reports: the monthly jobs report and the Job Openings and Labor Turnover Summary (JOLTS) report.

Monthly jobs report

Entrepreneurs, economists, and prospective employees look to the jobs report each month to understand the current job market and prepare for what has changed. Each month on the first Friday, a report is released by the Bureau of Labor Statistics (BLS) to show changes in the labor market during the previous month. The report highlights unemployment statistics, earnings data, labor costs trends in the United States. The monthly jobs report is an accredited source for exploring the impact of the labor market on different industries, socioeconomic groups, and geographic regions. The data in the reports is gathered using two types of surveys:

  • Establishment survey – the establishment survey uses data from one-third of the American labor force. The information gathered includes data from selected businesses to establish the average weekly hours worked and earnings for both full and part-time employees.
  • Household survey – the household survey uses data collected during the U.S. Census Bureau’s household interviews. During the interviews, surveyors ask 60,000 households to share information about their current employment status. The data collected during the survey is then used to calculate the unemployment rate and provide information about how much of the U.S. workforce is actively seeking employment.

JOLTS report

The Job Openings and Labor Turnover Summary is released monthly to supplement the Jobs report also issued by the Bureau of Labor Statistics (BLS). The JOLTS report highlights the number of job vacancies and voluntary separations, where the individual becomes unemployed due to quitting their job. In order to provide data on job opens the BLS surveys 20,000 businesses and government offices and asks for details about the number of new hires, new job openings, and separations. Surveyed businesses are asked to categorize separations as one of three types:

  1. Voluntary resignations
  2. Layoffs and discharges
  3. Other separations – mostly comprised of openings due to retirement or death

The impact of the Federal Reserve on the job market

The Federal Reserve controls the federal funds rate, which is the target interest rate for commercial banks that are lending and borrowing their excess reserves (although commercial banks aren’t required to adhere to it). The Fed controls the federal funds rate as a means of managing monetary policy and stabilizing the U.S. economy, updating the rate up to eight times each year.

Over the last two twelve months, small business owners and consumers have seen several rate hikes as the Federal Reserve worked to control the threats of a recession and skyrocketing inflationary rates. The current Federal Funds rate is 5.07%, which is much higher than the Jun 2022 rate of 1.58% and above the long term average of 4.6%.

As the cost of borrowing money becomes more expensive for businesses, it can mean the difference between choosing to expand and hire more employees, or wait for things to cool down to make growth decisions. Businesses may see the cost of labor increase, as employees hold out for higher wages to offset inflation in their living expenses. As a result, business owners may see the need to reduce the number of staff they have in order to increase the pay for other workers.

Another result of fed increases may also be decreased customer spending. Consumers are paying more for necessities like fuel and groceries during times of high inflationary rates, which means many of them are spending less money on retail products and professional services. Customers that rely on credit to make large purchases are discouraged by the rising interest rates and may shop around for lower prices or delay their purchases.

Ultimately, increases in the federal funds rate have the potential to significantly impact cash flow for small businesses. Many business leaders may either be forced to pass the increases on to their customers, close their doors, or look for business financing options.

There is some good news, however. After more than one year of record-high interest rate hikes, the job market has remained strong. This has some economists and financial analysts wondering if the current interest rate hikes will impact the job market at all! Of course, it may just be too early to tell. Historical data tells us that it typically takes 24 months for interest and inflationary rates to directly impact the labor market.

An unemployment rate of 3.7% means that competition among businesses who are looking for employees is strong. Hiring and retaining great employees is already one of the top challenges noted by SMB owners in the SCORE report. The biggest challenges that SMBs face in their hiring include:

  • Increased healthcare costs: The cost of employer-covered health insurance has become too high for most businesses to absorb. As a result, SMBs offer fewer health insurance perks, making large companies more attractive to potential employees.
  • Wage expectations are higher than work demands. Job seekers want to work less hours for the same amount of pay, forcing small business owners to hire more staff to cover the same workload. Employers are not able to offer the same annual salary increases as large companies due to their own increased expenses and decreased revenues. As employees begin to feel overwhelmed and undercompensated, they become complacent or seek employment elsewhere.
  • Employers have fewer qualified candidates to choose from. As stated in the JOLTS finding, there are plenty of job openings available, but the labor market isn’t growing fast enough. As a result, a relatively small number of qualified individuals are seeing a larger number of open positions.
  • Small business owners are forced to compete with the salary and benefit packages offered by large corporations, without having the revenue or long-term financial planning to support it.

How small business owners can attract and retain top talent in today’s economy

SMB owners already report attracting and retaining talent as a top challenge, and as the economy nears the 24-month mark on rate hikes, it is more important than ever for small business owners to prepare for a shift in the labor market. Fortunately, there are several strategies business owners can use to attract and retain the right employees.

Act fast

In a strong job market, talented candidates find placement quickly. As businesses and individuals have become more technologically advanced, the length of time from job posting to job offer has decreased. In order to attract top talent and compete with larger or more established businesses, it is best to review applicants as soon as possible. For qualified candidates, interviews can be scheduled using Zoom to help expedite the process further. It is always best practice to assume talented job seekers will receive multiple offers, so it’s recommended to extend a formal offer as soon as the decision is made.

Change the recruiting process

Technology has impacted the speed of the hiring process, but it also affects the way companies can recruit. Consider using technology to upgrade the recruiting process, attracting a larger pool of available candidates. Ways to change the recruiting process include:

  • Using social media to advertise job openings
  • Posting open positions on job boards, like Indeed
  • Hosting digital interviews
  • Reach out to qualified candidates on LinkedIn

Consider non-monetary compensation

The hiring and training process can be frustrating, but it is also costly for employers. Since onboarding requires a financial investment, it must be a priority of business owners to work hard to retain top talent. In an economy, where purchasing power has decreased for everyone, many employees are looking for monetary compensation to stay put. However, salary increases are not always the best decision for the bottom line. To retain good employees without increasing costs, consider these other means of compensating staff:

  • Remote or hybrid work environments – Offering remote positions or hybrid positions, where employees can work some of their hours from home, is a great incentive for staff.
  • Increased paid time off (PTO) – Increasing the amount of PTO allowed for each team member or increasing the number of company paid holidays can help employees avoid feeling overworked.
  • Offer flexible working hours – In small businesses that have the option to have employees working outside of the typical 9-5 office hours, a flexible work schedule can help employees avoid high childcare costs and avoid burnout.

Create a strong corporate culture

Is your business known as a place where people want to work? While money is important, it isn’t everything. If you offer a workplace that has a strong value system, offers growth opportunities, and provides a sense of community, you may be able to attract top talent even if you don’t have the top compensation package.

Bottom Line

According to recent data published by the Bureau of Labor Statistics in the monthly jobs and JOLTS reports, the job market is still strong. However, a strong job market means there is a lot of competition for employers who need to hire. SMBs can focus on hiring qualified candidates by acting fast and relying on technology to ease the process, while creating a workplace where employees know they are valued and can find meaning in their contributions. For small business owners looking to increase salaries, they can consider cutting other costs or securing small business financing.

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