NFIB’s Chief Economist William Dunkelberg discusses the impact of the talent gap and how small business owners can address it.

Small businesses are the engines that run the American economy and, by all accounts, are firing on all cylinders. According to the December 2018 NFIB Jobs Report, many small business owners are still looking to expand their payroll, with 23 percent of owners planning to create new jobs.

However, small business owners may face challenges filling the new positions they create. In fact, a record 39 percent of owners reported they couldn’t fill some job openings and 23 percent cited the difficulty of finding qualified workers as their top business problem.

NFIB Chief Economist William Dunkelberg offers some context and insight for what this might mean for small business owners.

NFIB: What does the tight labor market mean for small businesses right now?

Dunkelberg: Tight labor markets are a happy event for workers—they can be pickier and have an easier time finding better paying jobs. But, for employers, tight labor markets present real challenges. There are a record number of small businesses reporting that they can’t fill empty positions. The labor force is not growing fast enough to meet demand, and, because of that labor gap, these businesses can’t produce as much output. In fact, the labor market is so tight right now that if you fill a position, you’re probably creating a vacancy elsewhere.

NFIB: What makes a worker unqualified? 

Dunkelberg: About a quarter of small business owners said unqualified applicants didn’t have specific skills. For example, that could mean an applicant without the relevant technical abilities applying for a mechanic position. An additional 15 percent of owners said bad work history disqualified some candidates. But here’s the thing that shocked me: a significant amount of business owners also cited poor social skills, unreasonable wage expectations, drug use, appearance, or poor attitude.

NFIB: Are there any industries where this shortage of workers has hit particularly hard?

Dunkelberg: The lack of qualified applicants holds true for smaller businesses and larger organizations alike, but some sectors are struggling more than others. Topping the list of industries struggling to fill roles are construction, manufacturing, professional service firms and transportation and the wholesale trades. They’re all seeing the same problem; they’re struggling to get workers and that makes it hard to grow.

NFIB: How can small businesses ensure they are attracting qualified talent? 

Dunkelberg: The obvious thing employers can do is raise compensation. That’s still the single most effective thing to do to help address labor gaps. For many small businesses, attracting workers by turning into Google, with fancy offices and nice campuses, is too expensive, so higher wages becomes the biggest thing. NFIB’s research has shown that the percentage of business owners reporting they increased employee compensation is at a 45-year high. A net 35 percent of owners reported higher compensation in December, and a net 24 percent planned increases in the next few months, predicting further gains in wages and benefits.

Another solution is putting more effort into advertising open positions. Just getting the word out can be half the battle. For example, use your current workers to find and attract qualified applicants. We see all the time small businesses that are employing multiple people from the same family.

NFIB: Should businesses consider training programs for younger or less-experienced workers?

Dunkelberg: These kinds of programs can certainly be effective. You’re essentially growing the skills in-house and offering on-the-job training that you can’t find in the talent market, but small business owners need to be realistic about the costs involved. You’re investing time and money into getting a person trained, and the person in training is also spending time to be trained. Depending on how long that takes, it may or may not be worth it. If you decide to invest in a training program, keep careful track of associated costs so you have a clear sense of whether to continue the program.

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