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Ask SCORE by Dean Swanson

The COVID-19 pandemic continues to have a tremendous impact on U.S. small businesses, particularly on smaller “Main Street” establishments. While restrictions have been eased and the economy is on the rise, business owners are reporting a new, significant barrier to recovery beyond COVID: worker shortages.

This column explores the growing needs and challenges of small business owners in search of employees and is based on SCORE’s research completed from July 9-26, 2021. SCORE surveyed entrepreneurs who agreed to be contacted for research. From this master list of 16,265 people, 1,712 completed the survey for a response rate of 10.5%. Because this study aimed to capture the voices of business owners with employees and/or those looking to hire, respondents were asked to identify their current business stage and employee status as screening questions. After screening, 718 were identified as current business owners with employees (other than the owner) or as current businesses trying to hire employees.

June 2021 marked the fifth consecutive month with record-high readings for unfilled job openings (seasonally adjusted). The U.S. Department of Labor reported one million more job openings than expected in June, rising to 10.1 million open jobs from 9.2 million open jobs at the end of May. Since March 2021, the number of unfilled job openings rose 20-26 points higher than the 48-year historical average.

Small businesses play an important role in the United States labor market, and they are often considered the “lifeblood” of the U.S. economy. They employ 47.1% of all U.S. workers and contribute to 41% of all U.S. economic activity. Much of the current research and reporting focuses on worker perspectives, attitudes and drivers to achieve employment. In this study, we focus on current employment gaps through the eyes of small business owners, which is critical to developing programming that helps business owners recover from dramatic disruptions caused by the COVID-19 pandemic.

Two key findings of the report are as follows. Where applicable, SCORE included comparisons of these responses to SCORE’s The Megaphone of Main Street: Small Business Jobs Report conducted in 2017.

Small businesses struggle to hire

• Employment challenges currently rank highest among business owners. “Hiring the right talent” is the number one challenge (63.4% of business owners), overshadowing “finding customers,” followed by “retaining or motivating employees.”

• Two-thirds of business owners (61.2%) report having unfilled job openings within the past six months.

• 89.5% of business owners see hiring new employees as somewhat or very difficult. Once employees are hired, 69.9% have difficulty with onboarding and 62.9% cite troubles with retention.

• Pressure to increase wages to stay competitive now impacts twice as many business owners (54.7%) compared with 2017 survey results (26.2%).

• 70.3% more business owners cite lack of health care benefits as a barrier to hiring, compared with 2017 survey results.

Small businesses require help to recover

• Despite recent challenges, 67.2% of business owners surveyed report feeling optimistic about the next six months. This shows little decline compared to 2017 survey results showing 69% optimism.

• 56% of business owners plan to hire employees in the next six months.

• 60.5% of small businesses have increased wages to attract and retain employees.

•43.6% of business owners now use job posting sites with growing success. Still, “word of mouth” from other employees (56%) remains the top way to attract new employees.

• When asked what resources would be most helpful for small business success, owners cite better health care options (51.1%) first, followed by loan forgiveness or debt relief (49.9%) and access to capital (41.5%).

• 55.1% of small business owners expect hiring challenges to continue through 2022 and beyond.

“Increasing regulations and increasing minimum wage levels make it difficult to stay in business with employees. At the beginning of the pandemic, we laid off half of our work force. The business now runs MUCH better and is far more profitable than before.”

While owners relayed anecdotes of unemployment benefits keeping people from applying for jobs, research shows that at the macro level, unemployment insurance benefits have not disincentivized work or caused workers to delay returning to their previous jobs.

Larger companies may be able to respond to workers’ demands by offering higher wages and better benefits as the labor force tightens. Small businesses, on the other hand, often do not have the resources to compete. While small business owners are optimistic about the future, they now face a “labor pandemic” where they may not financially recover fast enough to meet the growing customer demand.

To address their hiring challenges, small business owners surveyed offered a few suggestions:

• Improve small business access to financial resources and employee benefits, especially health insurance and childcare.

• Forgiveness for the PPP loans they received and help accessing financing so they can pay higher wages to their employees.

• Outside options for health insurance and childcare to address those critical employee needs, especially when small businesses can’t afford to offer them.

Dean Swanson is a certified SCORE mentor and former regional vice president.