Depending on which side of the supply-and-demand charts you're looking at, beefing up wages will spur economic growth. Demand-siders say, when consumers have more money to spend, they tend to do so--and that helps prop up small businesses, from corner grocery stores to gyms to movie theaters.
Yet new research shows that economic benefits aren't the only factor behind raising wages. For some businesses, competitive pressure for top talent is an increasingly significant driver behind higher compensation costs. That's according to the National Federation of Independent Business economic trends report for September.
NFIB found that a net 23 percent of respondents raised wages in the three months prior to September, a 5 percentage point increase compared with the same period a year earlier. The business association also found that a net 16 percent of respondents said they would increase wages in the next three months, which is the second-highest rate since the financial crisis in 2008. (In December 2014, 17 percent of polled business owners said they'd increase wages in the coming months.)
While the labor market has returned to more normal levels, with the unemployment rate at around 5.1 percent, overall hiring has remained weak, per the most recent Department of Labor jobs reports. Nevertheless, small-business owners may be experiencing some unique pressures compared with the overall market, including competing with one another and larger companies for the best hires, and finding enough qualified employees. And that may lead to the need to ratchet up employee wages, the NFIB survey indicates.
Businesses are already reporting difficulty finding enough qualified workers. Forty-five percent of those surveyed by NFIB said they found few or no qualified workers to fill open positions, which is 3 percentage points higher than September a year earlier, and 4 percentage points higher than the same time period in both 2013 and 2012. In addition, 27 percent said they have positions they are unable to fill right now, a 6 percentage point increase compared with September 2014.
"The percentage of owners citing the difficulty of finding qualified workers as their most important business problem increased and is now third on the list, behind taxes and regulations," Bill Dunkelberg, the chief economist for NFIB said in a press release. "This is the highest reading since 2007 and suggests that employers will continue to face wage pressure in order to attract and keep good employees."
Meanwhile, more small-business owners said they have to hire. Twelve percent of those polled said they will need to add employees before the end of the year, an increase of 3 percentage points compared with September of both 2013 and 2014, and an 8 point increase compared with the same time period in 2012.
Nevertheless, with the economy stuck at a low 2.5 percent growth rate, entrepreneurs aren't very happy about the increases, Dunkelberg said.
"Small-business optimism continues to be stagnant," he said.