Why Small Firms Are Giving Out 15% Pay Raises
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Jennifer Strong in New York. As the job market tightens, many small business owners are racing to boost pay in order to keep experienced people from leaving. Here in the studio with the story is The Wall Street Journal's Ruth Simon. Ruth, set the scene for us.
How tight is the current labor market for small businesses?
What's going on with the labor market?
The labor market is tight. At least it's tight if you're an employer trying to find workers. There were 5.7 million job openings in May, and that's creating challenges for companies of all sizes.
So even with the increases, though, that you were writing about, you say wage growth at small firms is only now approaching that of the larger companies.
Well, what happens is small firms typically pay less than bigger companies and they have less generous benefits. They operate with smaller margins. But what's happening is smaller firms are having to play catch up. So their raises aren't as big still as the bigger companies, but they're getting closer and wage growth is accelerating faster at small firms because they really want to hang on to the workers that they value.
What are some of the stories you're hearing from folks about this?
Some of the stories I'm hearing are, first of all, companies are giving bigger raises and bigger increases in benefits than they have historically. I talked to one manufacturer yesterday. in new york who typically gives raises of one and a half to three percent annually and recently over the last three years he's had to give them pay increases of ten percent annually and again basically what these people want is to keep their teams of workers they really value in place and that's very important another thing that i've heard is that sometimes starting pay has gone up for entry-level workers And that's causing adjustments going up the line. One of the business owners I talked to said suddenly his workers found out what new entrants were paying and he had to give everybody a raise.
And sometimes this just happens inadvertently. Some of the businesses I talked to said we didn't really realize what the market was until we had to go out there.
Sure. And how are these firms holding up, by the way, given they typically also have smaller margins, right?
It varies. Some of the firms I talked to said the economy is good, and therefore I can afford to do it, and I do want to treat my workers fairly. But as you mentioned, some firms operate with smaller margins. One of the companies that I talked to felt like they had to give substantial raises to keep their employees from being poached. but that's forced them to put off purchases of new vehicles and tools. And so firms have to make trade-offs. And some firms also that I've talked to said, we're not going to be able to keep up with the very biggest companies, but we do want to try to keep turnover low. I mean, one of the things you hear from small firms is in a small company, you have an opportunity to do lots of different things.
You may be able to grow faster, but they still have to keep up in the labor market when it comes to pay.
We're talking about small business wages with Ruth Simon, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Ruth, did anything surprise you working on this?
I think one of the things that was interesting to me was that for younger workers, that's where the biggest pay increases were coming. I mean, you do see it up and down the line because as you give your younger workers increases, you may have to increase them for older workers.
Why are small firms' wage increases now approaching larger companies' levels?
But one of the things we're seeing now is younger workers are more educated. They're go online a lot. They use sites like PayScale and Glassdoor. So one of the business owners I talked to said people will come in to him, employees or prospective employees, and they've done all the research. They have spreadsheets. They have analysis. And so they can say, this is what this job should pay. And I know one of the business owners I talked to, too, said he just...
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–0:24
2
How tight is the current labor market for small businesses?
0:24–3:53
3
Why are small firms' wage increases now approaching larger companies' levels?
3:53–5:50
4
What real-world examples show small businesses giving 10–15% raises?
5:50–5:53
Speakers
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