NCPA - National Center for Policy Analysis

Labor Scarcity Hits Small Firms Hardest

October 30, 1998

With a national unemployment rate of 4.6 percent, many of the 5.8 million U.S. firms with fewer than 100 workers on the payroll are desperately scrambling to find new employees. Experts say that if the small business labor crunch continues it could hurt the entire economy.

Ninety-eight percent of the nation's employers have a payroll of few than 100 persons. These firms account for 40 percent of gross domestic product.

The following statistics reflect how small firms are trying to recruit:

  • The percentage of entrepreneurial firms with retirement plans has nearly tripled -- from 10 percent to 28 percent -- since 1993.
  • More than half the nation's small businesses gave workers bonuses last year.
  • The wage differential for newly hired workers at large and small firms narrowed in the period 1983 to 1993 -- from $1.27 to 50 cents an hour.

A record 21 percent of small firms surveyed by the National Federation of Independent Business in September reported that finding qualified employees is their most pressing problem. Ironically, some observers note, it may take an economic downturn to ease the small business labor squeeze.

Source: Bill Meyers, "Help Wanted in a Big Way," USA Today, October 30, 1998.


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