Small employers have become increasingly concerned about their ability to locate qualified employees. Part of the explanation for their problem is the historically high employment rate. For a long time, the country has had rising, and recently near record, employment to adult population ratios. This has meant a gradually tightening labor market and lower unemployment rates. At the same time, the skill requirements of jobs seem to be rising, eliminating employment opportunities for workers that lack the most rudimentary job skills. The percent of firms with an opening obviously is sensitive to the business cycle. Of concern, however, is the very high percent of owners who try to hire or hire, but report “few or no qualified applicants” for their open positions, even when the economy is weak. As a result, this issue of the National Small Business Poll focuses on Job Vacancies and the problems small employers have locating qualified employees.
Although the economy weakened in the latter half of 2007, 17 percent of small businesses still had one or more job vacancies (Q#1). Size of the small business is strongly associated with the likelihood of an opening. Forty-two (42) percent of firms employing 20 or more people had at least one current vacancy compared to just 13 percent of those employing nine or fewer people.
The plurality (47%) of small businesses with job openings had just one (Q#1a). Another 21 percent had two; 12 percent had three; and 18 percent had four or more. Combining both the number of small businesses with a current vacancy and the number of vacancies in those firms extrapolates to well over one million job vacancies in smaller businesses throughout the country during the survey period.
The majority (59%) of small employers without a current job vacancy hired at least one person within the 12 months prior to the survey, most within the preceding six months (Q#2). Owners of the largest businesses without a current opening were substantially more likely to have hired in the prior six months than owners of the smallest firms in similar circumstances (84% compared to 36%).
This report employs two groups of respondents to assess the type of available jobs in the small business sector. The first group consists of employers who have a current job opening(s); the second group consists of employers who do not have a current job opening, but who have had one in the last three years. The former described their current opening, or if they had multiple openings, alternately described the opening for their most skilled and their least skilled employee. The latter, those who do not have a current opening, described their last job filled.
Sixty-five (65) percent of the job openings were full-time; 34 percent were part time (Q#6). The smallest firms, those employing nine or fewer people, required more part-time help proportionally. The probable reason is that workload increases in the smallest firms are likely to occur in smaller increments requiring fewer work hours to fill them. The job is also more likely to be year around (78%) than temporary or seasonal (22%) (Q#7). The smallest are more likely to use seasonal or temporary employees. Again, the probable reason is the incremental variation in the hours required to satisfy the firm’s needs.
Most new hires replace existing employees. Fifty-nine (59) percent in this sample were replacements and 40 percent new (Q#9). Turnover can be a problem creating a constant need to replace employees in a specific job. Twenty-one (21) percent who hired a replacement indicated that turnover is a problem in the open job (Q#10). The number translated into less than 10 percent facing such a problem.
The median starting wage was about $12.50 per hour (Q#11) translating into an annual salary of about $24,000 a year. At the extremes, 14 percent were offered $7.50 per hour or less and 7 percent were offered $25 per hour or more. Thirty-one (31) percent augmented wages with tips, bonuses, and commissions, pushing actual job income higher (Q#11a). That additional compensation makes a considerable difference in some organizations and modest amounts in others. After the initial waiting period, 40 percent will/did also offer health insurance (Q#11b). Eighteen (18) percent did not respond to the question about starting wage/salary.
A majority (61%) indicated that compensation for the job is about average for their workforce as a whole (Q#11c). More (27%) reported the starting wage/salary lower than average than those (10%) reporting it higher than average. However, higher paying jobs turn over less frequently than lower paying ones.
A common concern frequently expressed about working in small businesses is the lack of promotion possibilities. The structured career ladders available in large firms are typically not present in smaller firms. But there are often advancement possibilities. Fifty-nine (59) percent indicate that the job in question has promotion possibilities (Q#12). In firms employing 20 people or more, the proportion rises to 75 percent. Though not every small business has an employee career pattern, the notion that a small business job is a dead-end job is simply false.
Small business owners value experience highly. Fifty-seven (57) percent required job experience for the position currently vacant (Q#13). Another 20 percent preferred experience, though did not require it. That leaves less than one-quarter (23%) for which experience was not at least desirable. There is, of course, a correlation between experience and skill level. Time on the job generally results in improved general job skills, such as, ability to work with people or manage a group of workers, and specific skills, such as, welding or computer programming. So, demonstrable possession of job skills, particularly occupational skills, will sometimes substitute for experience.
Small employers frequently use “bootstrapping” methods to recruit new employees. They try to keep recruiting costs low, although they do periodically pay for services to help them. Owners of the smallest businesses are likely to limit their search methods to low-cost options, while owners of the largest, small businesses are more likely to use additional and costlier methods.
The most common method small business owners use to recruit new employees is word-of-mouth. Seventy-nine (79) percent announced their job vacancies through word-of-mouth (Q#14B). The method requires no outlay, making it particularly attractive from a cost point of view. The corollary is to ask employees to help in the recruitment process. Sixty-five (65) percent engage employees to help recruit (Q#14I). The employee’s incentive to help recruit may involve a bounty-type payment or bonus for recruiting someone that is eventually hired; it may also involve the opportunity to work with a friend or acquaintance. The engaging-the-employees approach is particularly useful when the owner is happy with the current workforce and the job vacancy requires relatively low occupational skills or those possessed by several current employees. The effect of word-of-mouth, whether or not directly engaging employees, is to narrow the search, other factors equal, while minimizing costs.
Other relatively costless methods were also used frequently. For example, 13 percent placed an old-fashioned “Help Wanted” sign in the window (Q#14C). Window signs are particularly useful in places where there is high foot traffic or where people often visit. The approach typically signifies a search for lower-skilled positions.
Schools are anxious to place their students and recognize that not all of their graduates will pursue further formal education. Seventeen (17) percent of small employers recruit at schools (Q#14G). The data do not reveal the type of school on which small employers focus their efforts, but younger trainees are likely to be recruited from high schools and skill-specific employees from vocational schools. Recruiting from schools is attractive not only because of its cost, but because of the records and implicit screening that schools provide.
Owners of the largest, small businesses are almost twice as likely to use advertising services as are owners of the smallest, small businesses. For example, 30 percent used the traditional newspaper ads (Q#14A). Forty-eight (48) percent with 20 or more employees used newspaper ads compared to 26 percent with nine or fewer. Thirteen (13) percent placed ads in trade publications or newsletters (Q#14F). While these are likely paid ads, some organizations offer job vacancy listings as a member benefit. Again, owners of larger, small businesses were almost twice as likely to use print media as owners of smaller, small businesses. A relatively new recruiting method is posting ads on the Internet. Twenty (20) percent recruited by placing an ad(s) on an Internet job placement site (Q#14E).
A more formal and costly recruitment method is employment agencies. The emphasis here is likely a special skill or urgency. A typical agency charge is the equivalent of the hired employee’s first month’s salary/wage. Only 7 percent used a private employment agency (Q#14D). That is the same percentage that used free government placement services (Q#14H).
It takes only one qualified applicant to fill a job vacancy. But, the quality of the applicant pool is an indication of the overall availability of that one qualified person who is willing to accept the job. Small employers considered the pool of applicants for their job openings as thin at best, even in a period when labor markets were beginning to weaken noticeably. In 56 percent of cases, small employers described the pool of available job applicants as having few qualified people available (Q#15). Another 10 percent reported no qualified applicants. Only 9 percent thought there were lots of qualified applicants for their vacancy and 21 percent thought there were “some”.
Owners of larger, small firms, those employing 20 or more, evaluated the pool of job applicants more favorably than owners of the smallest. Assuming that these larger, small firms have more attractive positions to fill, for example, higher pay and more promotion opportunities, it is reasonable to assume that they are attracting higher quality applicants. On the other hand, it is also true that larger, small employers are less dependent on any single employee and therefore may not be quite so selective.
The most common complaint registered by small employers who find few or no qualified applicants is the lack of experience. Forty (40) percent volunteered the lack of experience as the reason for their overall view of the applicant pool (Q#15a). The second most frequently mentioned deficiency is the lack of job-specific or occupational skills (14%). Five percent mentioned scheduling/availability/transportation conflicts; another 5 percent a poor work history; 4 percent present legal issues which could include drugs, police records, legal status, etc. Ten (10) percent had no opinion since they have just started to search.
When asked to characterize their experience trying to fill job openings over the past three years, 26 percent of small employers considered the lack of job-specific or occupational skills as a typical deficiency of job applicants (Q#16A). Another 35 percent said the lack of those skills was an occasional problem. A poor work history was the second most frequent typically encountered deficiency (Q#16B), followed by unrealistic salary expectations (Q#16E). A lack of social or people skills (Q#16C) and a poor attitude (Q#16G) each were reported by 16 and 17 percent respectively as typical applicant characteristics. If these flaws occur “independently”, a third of the applicant pool were either disqualified or discounted for reasons completely under their control and easy to correct (in comparison to having to finish school). As the country becomes a more service-oriented society, interaction with people becomes a relatively more important qualification. That places a premium on social skills. While the anonymity of the computer may hide some social weaknesses, the average employee will need better social skills to survive.
Occupational skills are job specific. The skills gained through formal education usually are not. But education-associated skills are important in most jobs. Unfortunately, small employers cannot take their existence for granted. Eleven (11) percent reported the lack of basic English, communications or math skills as typical among job applicants (Q#16F). Another 21 percent said it was an occasional problem.
Appropriate employee appearance varies substantially by position. One job requires a suit and tie, another business casual, and another jeans and work boots. Fourteen (14) percent of small employers thought that inappropriate appearance was a typical problem (Q#16H). Twenty-nine (29) percent occasionally found appearance issues. Appropriate appearance is a totally avoidable issue and one that after the first day on-the-job should never occur.
Illegal drug use is a major national problem with important implications for the workplace. Nine percent of small employers reported drug use, including failed drug tests, as a typical problem among job applicants (Q#16I). Another 13 percent encountered it occasionally in screening applicants. Only 6 percent reported that ensuring that applicants were not illegal immigrants was a typical problem (Q#16D) and another 6 percent said it was an occasional problem. Eighty-six (86) percent of small employers do not view screening illegal immigrants as a problem.
Many potential employee problems can be averted by obtaining and checking applicant job references and most owners take this precaution. Forty-six (46) percent of small employers always obtained and checked prospective employee references (Q#17). Another 24 percent usually obtained and checked references and 18 percent sometimes did. Just 5 percent never checked applicant references.
At the time of hiring, an employer must fill out a Federal I-9 form for each new employee as well as tax withholding forms. Applicants must show the employer identification to prove they are who they say they are and a document to show they are eligible to work. Fifty-seven (57) percent of small employers always made copies of those papers (Q#19), likely thinking these records will prove, should proof be needed, of their effort to comply with the legal hiring requirements. Another 5 percent usually did.
Even if copies of the foundation documents are not required, employers must retain copies of the completed I-9 as long as the employee works in the business. In most instances, small employers keep the documents much longer than necessary. Two percent usually disposed of I-9s when the employee left and another 13 percent held them for two years or less (after the employee left) (Q#20). Fifty-eight (58) percent kept an employee’s I-9 form more than two years after the employee stopped working in the business. Fifteen (15) percent were not certain. But 11 percent indicated that they are not familiar with the I-9 form. It is possible the name or the terminology confused those respondents.
Just 6 percent claimed that in the last three years a government official has asked to see an I-9 (Q#20a). The likelihood of being penalized for not having these records is remote.
Mistakes and fraud lead to mismatches of names and Social Security numbers in Social Security records. To correct erroneous records and to ensure the correct amount of payroll tax is credited to the correct employee, the Social Security Administration (SSA) mails “does-not-match” letters to employers when mismatches appear. Eighty-seven (87) percent had not received a “does-not-match” letter from the SSA in the last three years (Q#18). Six percent of all small employers claimed to have received one and 3 percent claimed more than one in the last three years. Another 4 percent did not remember one. However, those employing 20 or more people are substantially more likely to have received one. That is reasonable as those employing more people have a greater opportunity for a mistake to occur or for a case of fraud to slip through.
The demand for experience when hiring new employees is a recurring theme in prior pages. Small employers demand it and complain about the lack of it. Experience means a new employee becomes productive immediately. The person requires little in-house training other than instruction in the firm’s policies and procedures. Since training in small businesses typically requires temporarily removing another productive employee from his/her responsibilities to help the new person, training costs the time of two employees rather than just one. This assumes that the small business has an experienced person on staff who can teach appropriate skills. It further assumes that the new hire is capable of the work and will stay long enough to repay the investment. The cumulative result is the preference for experience. The trade-off for the small employer to avoid these training costs is higher compensation to attract experienced workers.
An important implication of the small employer demand for experience is the need for young people to obtain experience or a marketable skill early. Opportunities include internships, summer, and part-time jobs, any place a young person can begin building a resume. Artificial and legally mandated wage rates create an impediment to opportunities, however. They often raise the cost of young employees beyond their value. Small employers recognize that young, inexperienced employees may be of negative value (cost more than they produce) to their firm early in the employment period. If the employee stays long enough however, the employer can recapture his investment in the employee. But if the employee does not have experience, then the employer does not know if the employee will stay long enough for the employer to recapture his training investment. So, to let many young people begin to climb the career ladder, government must not kick out the bottom rung.
A ziz-zag pattern across employers is now a standard, if not the standard, way to advance a career and increase income. The presence of job mobility suggests that even positions without promotion possibilities offer young people in particular important job experience. But small businesses are not without job advancement potential. In fact, the large majority of current vacancies in small firms have it. Small employers recognize that they must compete for talent. One way to compete is to have a job that has both personal and professional promotion potential.
Small employers complain that the pool of job applicants is thin. The type of job that they seek to fill obviously influences the pool as does local economic conditions and the compensation they can offer. Many of the cited shortcomings of applicants are preventable. The lack of job skills, poor attitudes, scrapes with the law, and poor work histories typically can be avoided. Employers are not social workers. When a prospective employee presents himself with little to recommend him or her, it is little wonder that the employer is reluctant to hire the candidate even when the need is present.