Small businesses struggle to fill job openings as labor market remains tight

“Finding qualified workers remained a major headwind for stronger job growth on Main Street in December,” said Bill Dunkelberg, Chief Economist for the National Federation of Independent Business, as the organization released its December jobs report. According to the NFIB, 35 percent of small business owners reported job openings they could not fill in December, down one point from November.

“In the meantime, compensation increases have softened among small businesses but remained solid as the year came to an end,” Dunkelberg added. The report revealed that a seasonally adjusted net 29 percent of small business owners reported raising compensation in December, marking a three-point drop from November and the lowest reading since March 2021.

While state-specific data wasn’t available, NFIB State Director Rosemary Elebash weighed in on how the national trends are impacting Alabama’s small businesses. “Alabama’s tight labor market continues to create challenges for Main Street businesses,” Elebash said. “It’s hard to meet customers’ demands when you can’t find and keep enough good workers.”

Looking ahead, small business owners appear cautious about increasing compensation. According to the report, a net 24 percent of owners plan to raise pay in the next three months, a four-point drop from November’s highest reading of the year. Despite this, Dunkelberg noted that the labor challenges are persistent. “Labor costs remained a top concern for business owners, with 11 percent identifying it as their single most important problem,” he said.

The issue of labor quality also showed little improvement. “The percent of small business owners reporting labor quality as their top operating problem was unchanged from November at 19 percent,” Dunkelberg said. Meanwhile, hiring plans remained steady, with a seasonally adjusted net 19 percent of owners planning to create new jobs in the next three months, up one point from November.

Overall, more than half of small business owners — 55 percent — reported hiring or trying to hire in December, a figure unchanged from November. However, finding qualified applicants continues to be a struggle, as Dunkelberg pointed out. “Forty-nine percent of those hiring or trying to hire said they found few or no qualified applicants for their open positions.”

Breaking down the numbers, Dunkelberg added, “Twenty-eight percent of owners reported few qualified applicants, while 21 percent reported none at all.”

The report also highlighted a distinction between skilled and unskilled labor needs. “Twenty-nine percent of small businesses had openings for skilled workers, down one point, while 13 percent reported openings for unskilled labor, which remained unchanged,” Dunkelberg explained.

The challenges varied across industries. “Job openings were the highest in the transportation, construction, and manufacturing sectors,” Dunkelberg said. “Meanwhile, agriculture and finance sectors reported the fewest job openings.”

Dunkelberg noted a significant decline in the construction sector. “Job openings in construction were down 13 points from last month and down 17 points from the prior year, with 41 percent of construction businesses still reporting an open position they couldn’t fill,” he said.

Summing up the report, Dunkelberg emphasized that the tight labor market continues to weigh on small businesses as they navigate hiring challenges. “The overall outlook remains uncertain,” he said. “But for now, Main Street businesses are facing a labor market that remains a significant obstacle.”