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Last month this column asked: Shouldn’t a worker shortage force companies to offer higher wages? It seems to be happening a little more lately, and more small-business owners than ever are now citing compensation costs as their biggest problem. Yet ironically small firms are also suggesting that the labor market is not nearly as tight as it was, so workers may find future raises harder to come by. Business owners are also scaling back plans for hiring in the future. That’s according to the latest employment survey from the National Federation of Independent Business, due out later today. The NFIB Small Business Employment Index measures actual and planned changes in employment and compensation to gauge the overall health of the labor market. The index has ticked down again and now registers just barely better than normal. NFIB Chief Economist William Dunkelberg reports: The Employment Index remained essentially flat… registering 100.3 in May
after measuring 100.4 in April. This is the third consecutive month in which the
Index has declined. The current reading is below the 2025 average of 101.2 but
slightly above the historical average of 100.0. Of course rising wages are good news for workers but not so good for employers, who may have difficulty passing on higher costs to customers. It seems that owners are a little happier these days with the quality of their employees but not as happy about the quantity of dollars required to attract and retain them. Mr. Dunkelberg reports: In May, a seasonally adjusted net 31% reported raising compensation, up 1 point from April. A net 18%(seasonally adjusted) plan to raise compensation in the next three months, unchanged from April… 13% of small business owners identified labor quality as their single most
important problem, down 5 points from April and marking the lowest level since December 2016. While reports of labor quality as the single most important problem declined in May, reports of labor costs increased to the highest reading in the survey’s history. Fourteen percent of business owners reported labor costs as their single most important problem, up 5 points from April. Owners are feeling pressed by compensation costs, but nevertheless seem to have less difficulty hiring and retaining workers. According to the NFIB economist:
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