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A tight labor market is holding small businesses back from expanding in this hot economy

Key Points
  • CNBC and SurveyMonkey's latest small business optimism index echoes that sentiment, finding 52% of small businesses say it's harder to find workers today than it was a year ago.
  • According to the NFIB, labor quality has been the top issue for the last 16 months, shifting into that spot as the tax overhaul burden was lifted for Main Street in December 2017.

Adam Rammel is gearing up for an expansion. The co-owner of Brewfontaine, a craft beer bar in Bellefontaine, Ohio is opening up an events and catering business in a few months' time, requiring the company to nearly double its current staff of 25 workers—a tall order in a historically tight labor market.

"We are in manufacturing country and manufacturers are expanding their wages to attract workers in our area—it continues to be a challenge as we try to retain and recruit new talent, especially for our catering arm," Rammel says. "The economy has been very hot lately and that means there are opportunities elsewhere."

Tipped workers make above minimum wage, while kitchen employees bring in between $12 and $16 an hour depending on experience at the restaurant, and some employees are salaried with profit-sharing, he says. But Rammel knows he may have to up the recruitment game even more. While outright health insurance is not feasible, he's considering different health and wellness incentives for workers, as well as housing options to bring people to the area as he gets set to grow his business.

"We are trying to get out ahead of this—we want to do everything we can to make us a valuable and attractive place to want to be an employee," he says.

Adam Rammel is looking to incentivize new workers as he expands his business in a historically-tight labor market.
Source: Scott Winters

Kristin Ledgerwood is experiencing the same competitive crunch as she looks to grow her specialty bakery, Vivian's Gourmet. The shop is located in Evergreen, Colorado some 45 minutes outside of Denver, which puts her at a disadvantage for recruiting. She has three employees and hopes to bring on two more in the future, offering vacation time and small pay increases when she can.

But Ledgerwood admits she'd be able to expand if she could find the talent needed.

"We are at this plateau, of where we could actually increase our sales more, but we don't have the ability to because we are pretty tight on staff—everyone is maxed out on what they are able to do," Ledgerwood says.

According to the NFIB, labor quality has been the top issue for the last 16 months, shifting into that spot as the tax overhaul burden was lifted for Main Street in December 2017. The group also recently conducted a job training survey that found 22% of small employers who have hired an employee for their most-skilled position in the past two years have actually lowered the minimum requirements for applicants. In addition, about a quarter of employers said they lowered requirements for the most-common, less-skilled positions, underscoring the idea that both skilled and unskilled workers are hard to come by in this labor market.

CNBC and SurveyMonkey's latest small business optimism index echoes that sentiment, finding 52% of small businesses say it's harder to find workers today than it was a year ago. The issue has remained steady the last few quarters. That number increases to 63% for businesses with 50 or more workers.

And that's why businesses like Michael Canty's Alloy Bellows Precision & Welding is focusing on retaining the workers it has on board. The Highland Heights, Ohio-based company makes industrial bellows for oil and gas drilling, and has some 120 employees between its two facilities. Canty says he pays on average $21 an hour and offers benefits including medical and dental, along with disability and a 401k program.

He's constantly re-assessing benefits, but what he believes helps to set his small business apart is the environment and communication with workers.

"If an employee works on the floor, they know me," Canty says. "Our employees don't just work at the company, they get engaged in the company—they know what we are doing, know what our views are. When they feel engaged they feel they're a part of something bigger than they are and that's what helps to keep them along with competitive pay and benefits."

But Canty is well aware he's competing in manufacturing country like Rammel, and the workers he has trained are well-versed in skills that are highly-desirable to competitors. Keeping these workers on board is key.

"Worker retention is always the most important issue for us, because they're already here," Canty says. "They're already trained and every time an organization like ours loses a talented employee, we lose institutional knowledge as well."