In May 2019, U.S. unemployment fell to 3.6 percent, the lowest mark in 50 years, The Washington Post’s Heather Long reported at the time. That’s good news for politicians and investors. For small business owners, though, record-low unemployment creates an issue. When the job market tilts in favor of employees, businesses have to work harder to hire new people and retain their current employees.
That extra work can feel like a burden for small business owners. As we will see, however, low unemployment can actually foster a healthy environment that creates opportunities for businesses to grow and improve.
The American economy has been growing every quarter since it came out of the recession in 2009. Quarter after quarter, that growth has been creating new jobs.
Some economists have wondered whether too many jobs were created. In a perfectly efficient economy, unemployment wouldn’t be 0 percent. People need wiggle room to change jobs. The Economist writes that the “natural” unemployment rate in the U.S. was always presumed to be around 5 percent. Below that, the Federal Reserve has historically raised interest rates to keep growth from happening too quickly.
But the Fed didn’t do that this time. That’s why both unemployment and interest rates are so low today. Unemployment and relatively cheap-to-borrow money has kept the American economy humming.
Those numbers don’t tell the whole story, though. There’s another key measurement called the labor participation rate that measures how many working-age people are working or looking for work. That rate currently sits around 62 percent, says economics writer Louis Uchitelle. The last time the U.S. had unemployment numbers in the 4-percent range — around the turn of the millennium — labor participation was higher, about 67 percent. That means there are millions more working-age people this time around who simply aren’t looking for jobs.
Still, for the most part, people who are looking for work are finding work. In fact, people who might not have sought work in the past are finding opportunities, says Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.
“For two decades, through expansions and recessions, disability drove increasing numbers of prime-age workers out of the labor force,” Kashkari writes at The Wall Street Journal. “Economists feared this trend would never reverse. Yet in recent years people who previously had considered themselves disabled have been entering jobs.”
Business owners often find themselves in a tough spot when unemployment dips this low. Their businesses have work that needs to get done, but there aren’t enough available people to see that work through.
In fact, a March survey of independent American businesses found that six in 10 respondents said they were hiring, but 54 percent found few or no qualified applicants for those open positions, business writer Martha C. White reports at NBC News.
“More than one in five said difficulty in finding workers was the top problem facing their business, and nearly two in five said there were current job openings at their companies they could not fill.”
That trend disproportionately affects different industries and different parts of the country. In a place like Silicon Valley, it’s relatively easy to find a front-end programmer. In a place like Central Missouri, however, businesses are having trouble finding employees who are skilled in trades.
"We hear a lot from our electricians, plumbers and contractors that a lot of individuals don't want to go into those careers anymore, so there's fewer and fewer people that want to go in those types of trades," Missy Bonnot, director of economic development for the Jefferson City Area Chamber of Commerce, tells the local News Tribune.
That means some businesses are having to navigate growth with a lean staff. In Iowa, for example, industrial equipment manufacturer Vermeer has asked employees to work voluntary Saturday shifts just to keep up with customer demand, Axios markets reporter Courtenay Brown writes.
When employers struggle to find employees, that usually means new hires can negotiate higher pay. For small businesses — especially those with slim profit margins — that can be a big cost to take on.
That trend doesn’t seem to have distributed evenly, though. Martha Gimbel, an economist at the job-search site Indeed, tells The New York Times’ Ben Casselman that better-paying industries were seeing faster job growth, but lower-paying industries were seeing faster wage growth. “That could indicate that sectors like health care and manufacturing are snapping up workers, forcing retailers and restaurants to raise pay to compete,” Casselman writes.
Again, here’s where the current jobs market is doing something unexpected: Wages aren’t growing that quickly. Ernie Tedeschi, a former economist for the U.S. Treasury, notes that the highest-skilled occupations aren’t seeing the kind of wage growth they saw when jobs were previously this plentiful, around 2000.
Tedeschi says this could be due to a combination of macroeconomic forces like the relative weakness of labor unions and the dominance of certain companies in key sectors (e.g. Amazon in e-commerce).
That’s good news for small businesses that can’t afford big pay raises. If you’re currently competing for talented people, you might not need to compete over things like salary and benefits. Instead, people might be more responsive to opportunities for leadership roles or the chance to carve out unique career paths for themselves.
In a market where people are looking for satisfying jobs at least as much as they’re looking for pay bumps, your reputation as an employer becomes your competitive edge.
It’s the principles you stand for and the relationships you nurture with candidates that will help you hire the most talented people. It’s your ability to position yourself as an employer who invests and supports employees that will give you this competitive edge.
Here are four things all small businesses can do to create such a reputation among both prospective and current employees. Commit to the actions below, and make sure those commitments are front and center in any job ad you post and every conversation you have with potential hires.
The best candidate for a vacancy might not even be actively looking for a new job. So, posting a want ad won’t help you attract that person. But networking in your industry can.
Bridget Miller, contributing editor at HR Daily Advisor, recommends going to industry networking events, connecting with people on social media, and creating a referral program that incentivizes others in your network to help you make connections.
It’s also common practice today to ask for referred candidates over LinkedIn, so growing your network can only help you reach talented people.
Then, maintain and nurture relationships with these connections. People who might not be a good fit for a role now could be perfect for other roles later. In the meantime, take the time to like people’s updates on LinkedIn, engage with any content they post, and share professionally relevant content with them.
Paying your team members to learn something is a low-risk, high-reward way to earn their loyalty. This could be job-related training, or it could just be for the sake of personal development. Both investments pay dividends.
A few ways you could invest in your employees:
“One of my clients mandates that her employees participate in live and virtual educational programs each month,” business coach Marla Tabaka writes. “Most are free or come at a very low cost. Her metrics have revealed that revenue and customer satisfaction ratings increase when her team regularly engages in these programs.”
Many American workers carry significant student debt. One very effective employee-retention strategy is to simply help people pay off those debts.
You’ll have to run some numbers to see whether this strategy makes sense for your business. As Salesforce’s Ruthie Miller notes, “86% of employees say they’d commit to a company for five years in exchange for help with student loans.”
With each of your employees, there’s a dollar figure that’s lower than the cost of replacing that person within five years. See whether that figure would be enough to make a major dent in that person’s student-loan debt.
Your employees have ideas that could help your business, but they might never have the opportunity to share those ideas because they’re busy with their day-to-day work.
So, open up a little space for their ideas. At Salesforce, we survey our employees a couple of times per year to get their thoughts on how we can improve the things that most need improving.
“Our process ensures employees are both free with their feedback and proactive with solutions,” says Marie Rosecrans, SVP of SMB Marketing at Salesforce.
“Simple things like Start-Stop-Continue exercises have helped us get to the root of several issues and improve our day-to-day operations. The reason this strategy works for us is that it makes improvement a shared responsibility between employees, managers, and the leadership team.”
When employees feel that shared sense of responsibility, they feel a sense of belonging. Few things engender more goodwill and employee loyalty than that.