In spite of a soft economy, it's never been tougher than it is now to recruit unskilled workers. Here's how some smart companies are attacking the problem

John Boyce had his managers riding buses in downtown St. Louis, trying to hook passengers into working for his cleaning- service company. Pam Medlin handed out her help-wanted flyers to Vietnamese and Hispanic worshipers at churches in Greensboro, N.C. Kelsey August marched from her house in Austin to a nearby grocery store, raiding its cashiers to staff her direct-marketing company. "I'm not proud," August declares matter-of-factly, by way of explanation.

Many other CEOs have been swallowing their pride and, like August, Boyce, and Medlin, have gone to extraordinary lengths in their relentless hunt for unskilled workers. With an unemployment rate of 3.9% at the end of 2000 (the lowest level in 30 years), the nation has seen its labor shortage reach down to the bottom rung of the workforce with a vengeance. And the crunch is expected to persist for many years throughout the labor force. Despite the softening of the economy during the past few months, experts say, demographic factors will likely prolong the shortfall of unskilled workers.

To snag their share of workers, McDonald's and other giants that depend on the unskilled-labor market have been upping salaries and benefits. Of course, if it's tough for McDonald's to recruit those employees, it's even tougher for small businesses that rely heavily on unskilled workers but lack the resources of their large competitors. One statistic underscores how heavy the reliance is: 53% of the nearly 800 small companies surveyed last year by Philadelphia-based TRS Intersearch for American Express Small Business Services reported that a majority of their workers had no more than a high school education.

So great is the distress among small-business owners struggling to find low-skilled labor that some have moved on -- literally. Gregory Howe jousted for years against Oracle, Sun, and other computer-technology giants in the competition for entry-level programmers in the San Francisco Bay Area. Howe lost. Three and a half years ago he relocated his 48-employee software company, BMS Corp., from downtown San Francisco to Denver. In Denver, he says, his strategy of recruiting high school students and training them as programmers is succeeding.

Restaurateur Lorrie Ambrose of Chichester, N.H., has taken even more drastic action. "Every restaurant on the main drag to Concord has a Help Wanted sign," she says. Unable to scare up waiters and waitresses and kitchen help, Ambrose has put her 12-year-old establishment, Dominick's (named in honor of her husband), up for sale.

Selling is one option, of course. But if you choose to stay and fight, how can you compete effectively for workers against the likes of McDonald's?

The question has assumed increasing urgency for Kelsey August, CEO of 43-employee Lone Star Direct. Five years ago the wages she paid her workers were higher than what McDonald's and other fast-food behemoths in the Austin area were offering their entry-level employees. But now she's at a decided disadvantage. McDonald's and Wendy's are shelling out $10 to $12 an hour, compared with the $7 to $8 that she offers her packers and shippers. August's desperate ploy to lure away cashiers from a local supermarket actually did result in some hires, she says, but nowhere near enough.

It took a while, but by and by she stumbled on a better strategy. For a long time August had solicited only full-time employees. When she experimented with placing an ad for a part-time job, she was astonished. Applications flooded in, many of them from young stay-at-home mothers. Realizing that she had hit on a gold mine, she began to recruit aggressively for part-time employees, seeking them, among other places, at local schools and not-for-profit organizations.

Her hires had very specific needs, August quickly realized, and she needed to revamp her terms of employment to accommodate them. For starters she had to grant her young mothers flextime. She also had to offer them a lot of perks, such as a 401(k) plan, tuition reimbursement, and even free massages. "We give them certificates of achievement, we have birthday celebrations, and we do a lot of mentoring. People needed to know we care about them," August says. As a follow-up she has developed a set of training and retention tools, which she markets to other companies. And because about two-thirds of her production workers are high school dropouts, August brings instructors to Lone Star Direct to help her employees earn high-school-equivalency degrees.

"Every restaurant on the main drag has a Help Wanted sign."

Offering lots of perks may seem lavish for a company with $2.3 million in revenues. But she felt she had no choice. "I have to have a better culture," she says, "because I can't pay them that much."

Despite August's ingenuity, she has had to struggle to find workers in an increasingly competitive market. Two years ago she began offering her employees a $200 bonus for each potential recruit they referred to her. The strategy has paid off, not only in the 12 employees she's hired as a result but also in an 80% reduction in her advertising budget for recruitment.

Like August, Bruce Benoit, president of a machine shop in St. Johnsbury, Vt., has been watching the wages at the local McDonald's with a wary eye. Last summer he raised the starting salary at his North East Precision Inc. from $7 to $8 an hour to match what the local burger emporium and supermarkets were paying, and he expanded health-insurance coverage and reduced premiums for his 50 employees. The results were disappointing. The physically demanding, potentially dangerous work at his shop is a lot harder than serving fast food. Mere parity with McDonald's wages didn't suffice. Benoit still couldn't attract the help he needed.

In an earlier effort to find employees, he had joined with other small manufacturers in the St. Johnsbury area to offer a 16-week basic course in machine work at a local high school. The course hasn't made Benoit happy yet. During the program's first five years of operation, he has hired only six of its graduates. But people are moving out of the area or taking better-paying jobs, and few young people are interested in machine work. Last year the course attracted only 12 students, all of them workers with some experience who were looking to upgrade their skills. Even at peak capacity, the program turns out a maximum of 30 graduates a year, hardly enough to supply the region's half a dozen manufacturing companies, which employ more than 500 people.

So Benoit still has to hunt far and wide for recruits. Because he was shorthanded last year, he says, he had to turn down business, which cost him about $100,000 in revenues. "I could use 10 people right now," he says.

While Benoit looked outward for help, John Boyce turned to his managers to find workers for his company, Janitron. He deployed as many as four managers to hand out business cards, along with directions to Janitron, on bus routes with easy access to the company's St. Louis headquarters. But the bus roundup yielded only a handful of employees for his janitorial service, he says, and he abandoned the strategy after trying it on and off for a year.

Last year he initiated a referral bonus as an incentive to his rank-and-file employees to recruit workers. But the program didn't take off until last summer, Boyce says, when he offered a $100 referral bonus to his building managers and supervisors, too. In short order that strategy yielded 47 entry-level hires for his 225-employee company. Revenues last year were $2.6 million, and he considers that the $4,700 in bonuses was money well spent. What's more, there's a built-in guarantee in Boyce's bonus offer. To enhance the prospect that his new hires will stick around, Boyce pays the referral bonus only if a worker remains in his employ for at least 90 days.

To recruit and retain the workers that he needs in his two Allegra Print and Imaging locations, in Tulsa, Jerry Holder has devised a different strategy. The past 2 or 3 years have been "the worst" period for recruiting in his 15 years in business, says Holder. "I was having trouble getting people to even fill out an application," he recalls.

Several months ago he began placing what he calls "friendly" newspaper ads for job openings in his sales, production, and quality-control departments. The ads evoke a genial, welcoming spirit. "Let's see if it fits. Come in, see the place" is how Holder sums up their message. From the first encounter that job candidates have with the company, he courts them with red-carpet treatment. No matter how low level a job may be, the reception is the same. Holder escorts each prospect on a shop tour, with introductions to key employees.

Using the tender approach for three months last year, Holder hired two people. He believes both will stick around for the long haul. For the new hires and his 23 other employees, no matter what their rank, he has printed up business cards. In Holder's view such symbols of respect are important. To promote recruiting and retention in his $2.3-million company, Holder says, he has "gone overboard" in offering his workers benefits, including company-subsidized health insurance, a 401(k) retirement plan, and tuition reimbursement.

Because Pam Medlin's yearly recruiting quota dwarfs the requirements of business owners like Holder, she felt her heart drop in tandem with the unemployment rate in Greensboro several years ago. How could she find all the workers that her temporary-placement agency, Key Resources Inc., provided to her corporate clients every week? (The number of employees is now up to 1,200.) She grasped for the only ready supply of unemployed people within reach: immigrants who had settled in the Greensboro area. Before long she was spending her Sundays recruiting workers at the Hispanic and Vietnamese churches in the area. "You get one person a good opportunity, a good job, then they tell their friends. The next day, you have four people showing up," she says.

Still, she found employers reluctant to take on workers who couldn't speak English. Medlin tracked down translators. "I would walk into a Hispanic grocery store and say to someone, 'You seem to speak English well. Would you translate for me?" When a translator is needed for no more than a day or two to explain, say, a repetitious manufacturing task, Medlin's company pays for the service. For more complicated tasks, Medlin hires a translator for an entire project, and the employer pays the worker's salary because he or she also has other duties on the project.

The immigrants she has recruited have "a good work ethic and low turnover," says Medlin, who regards immigrant communities as an important source of labor in the nation's economy. In fact, immigrants, who now make up 12% of America's workforce, have come to dominate the low-skilled job sector, according to Demetrios Papademetriou, codirector of international migration policy at the Carnegie Endowment for International Peace. Not that the jobs are always such a great deal for the newcomers themselves. Immigrants are particularly at risk of being exploited by some unscrupulous employers who may pay them less than the minimum wage or not compensate them for overtime work, according to Papademetriou.

The for-profit industry of placement agencies, exemplified by Medlin's company, is an increasingly important source of blue-collar and unskilled labor. There's a parallel industry of not-for-profit placement agencies, many of which are community based and government funded. They typically provide a steady stream of workers, whom they train in such "soft skills" as showing up on time for work and resolving conflicts without violence. One such agency is the Independence Center, in St. Louis, a mental-health rehabilitation center that specializes in helping people get off welfare and into private-sector jobs.

Holder has "gone overboard" on benefits to lure employees.

Rick Kalina, president of Kirkwood Insurance Service Co., also based in St. Louis, depends on the Independence Center to staff his company's four unskilled clerical jobs. The center handles all screening and interviewing and guarantees that the workers it hires for Kalina will report to work when they're expected. "I had a constant turnover problem, which accelerated in the past few years because of the tight labor market," says Kalina. "We'd run an ad every week just to keep applications coming in, because I never knew if Monday morning somebody would've taken another job that pays 50¢ more."

No longer. Kalina says the Independence Center has solved his problem.

Still, welfare-to-work programs in general have received mixed reviews from employers around the country. For example, Harry C. Alford, president and CEO of the National Black Chamber of Commerce, in Washington, D.C., hired two office workers trained by the Georgia Avenue Community Development Corp., a welfare-to-work program. "In and out, in and out," is how he describes their stay. Both workers have left his employ, although Alford says he's open to hiring graduates of similar programs.

As for New Hampshire restaurant owner Lorrie Ambrose, she has been at her wit's end trying to solve her labor-shortage problem. "Putting an ad in the paper is throwing money away," she says. One kitchen helper quit in pursuit of higher-paying work driving a truck. His prospective replacement found another job before appearing for the first day of work. Ambrose once had five waitresses and six kitchen workers at the 85-seat Dominick's. Customers now line up outside because she's down to her husband, two of her children, one part-time waitress, one part-time cook, and herself. She and her husband work 70 to 90 hours a week. Now she is trying to sell the business, in part so she can follow through on some real-estate-development projects that she and her husband have recently undertaken.

Ambrose feels a sense of dÉjà vu as she sees Dominick's slipping away. In the late 1980s her bank was among several that failed in New Hampshire. The Federal Deposit Insurance Corp., which took over the bank, threatened to collect her $25,000 loan balance in short order, even though she had never missed a payment, she says. Outraged, she complained to her state legislators, a gambit that apparently kept the FDIC at bay. "We nearly lost our shirt here," she recounts. "My husband said if we can make it through this, we can make it through anything." Never did she imagine that she'd be done in by good times.

Rifka Rosenwein is a senior writer at Inc.

Shortage Expected to Persist

Would a recession or economic slowdown expand the pool of unskilled workers available for employment by small businesses? Paul Harrington, associate director of the Center for Labor Market Studies at Northeastern University, in Boston, notes that small companies will feel some ripple effect as large companies lay off factory workers and other low-level employees. In recent months, for example, General Motors, Office Depot, and Whirlpool were among the giants that announced major layoffs. And two big retailers, Montgomery Ward and Bradlees, shut down for good.

Harrington, however, says the shortage of workers at the bottom end of the labor market is here to stay because of demographic trends. As the 79 million baby boomers move up through -- and out of -- the workforce, there aren't enough younger workers to replace them in low-level jobs. And by 2008, there will be almost 5 million fewer adults between the ages of 25 and 44 than there were in 1998. Plus, the recent influx of working mothers has just about been "tapped out," according to Harrington. Together, those trends account for a slowdown in labor-force growth. As a result, job growth will continue to outpace the increase in the working-age population for most of the decade, according to the Employment Policy Foundation, in Washington, D.C.

Please e-mail your comments to