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Data & Research May 25, 2023
Labor Demand Outweighing Recession Fears for SMBs
Business confidence is down among small employers. But 401(k) and other benefits are likely to remain amid long-lasting tight labor market, according to CBIZ.
Reported by Alex Ortolani
Small and medium-sized businesses are feeling the squeeze of months of high borrowing costs and inflation. But with employee attraction and retention ranking as their biggest concern, it’s unlikely they’ll look to employee benefits such as retirement saving plans for cutbacks, according to financial services and advisory firm CBIZ Inc.
CBIZ’s Main Street Index, released Wednesday, found waning of confidence among employers with 100 or fewer employees, with the firm’s Main Street Index dropping to 60.62, down more than 7 points from the previous quarter.
“The Main Street Index is all pointing to a recessionary trend,” says Anna Rathbun, chief investment officer of CBIZ Investment Advisory Services. “Compared to the last two quarters, things are not looking as rosy.”
The current market environment is creating squeezed margins for many businesses that are leading to cutbacks, Rathbun says. That tightening, however, is happening as employers are concerned about hiring and retaining employees amid a tight labor market. Almost half of respondents (48%) listed employee retention as a top concern, up 25% from Q1, according to CBIZ.
That need to retain workers will likely mean employers will continue to maintain retirement saving and other benefits they see as important to keeping talent, Rathbun says.
“It’s a very unique situation where this may not look like a classic recession,” she says. “You see people having massive layoffs in some areas, and then on the other hand, they are trying very hard to retain employees.”
Rathbun says wages and benefits like 401(k) matching are likely not going to be areas where businesses cut, because they need employees to keep operating, which is not a given in the current environment.
“If you have to deal with shortage of labor supply and you need to keep wages competitive and lure people into working for you, you have to find cost-cutting elsewhere,” she says. “This is a very challenging environment for small and medium-sized businesses.”
Rathbun sees some of the long-term labor tightness as a result of changes to the mentality of the workforce since the pandemic, including people job-hopping or parents deciding they like to be home more and finding other workplace options.
“You have a labor shortage and demand mismatch,” she says. “The labor market issue that we are seeing is secular, it is structural. … It might be here to stay during both boom times and down times.”
CBIZ’s business confidence survey was conducted between April 24 and May 5, with responses from 753 businesses that have fewer than 100 employees.
