Small Businesses Feel Relief as Wage Growth Slows
It has been a chaotic few years for businesses and consumers, with small businesses taking a much harder hit than they were prepared for. A lot of this was due to a labor shortage combined with low unemployment, which led to an increase in wages. While higher salaries bring joy to workers, they present a huge challenge to small business owners trying to keep up with competitors. But a recent analysis from the Indeed Wage Tracker shows relief is in sight for business owners. Let’s get into it!
The Numbers
The Indeed Wage Tracker tracks wage growth based on job postings from the job site Indeed. The tracker found that wages and salaries went up 5.3 percent year-over-year in May 2023, compared to the 9.3 percent high we saw in January 2022. The Real Earnings Summary put out by the Bureau of Labor Statistics’ May jobs report also indicated that average hourly earnings increased 0.3 percent—a slight drop from April’s 0.5 percent increase. While pressure on business owners is still elevated, it’s important to note that in 2019, average wage growth was sitting at 3.1 percent—and the Indeed Wage Tracker is predicting today’s growth could return to pre-pandemic levels by early 2024.
Optimism for Small Businesses?
Software giants like Amazon and Facebook saw a smaller decline in wages as compared to sectors where wages were already low, such as retail and food service. Business owners in these areas are feeling more relief than the tech industry—mostly because wages are their biggest cost. What does this all mean for SMBs? With wages and job postings cooling down, there’s less pressure now for employers to compete for workers in an increasingly volatile market. The focus can shift away from the hiring frenzy we’ve been seeing, to a more subdued “Grow the people you’ve got” mindset.
Optimism for Workers?
It might sound like this cooling of wages is a bad thing for workers, who for years have been enjoying the rare upper hand in terms of employment. But despite wage growth slowing and job postings narrowing, workers are still in a great position. Why? Inflation. For a long time, interest rates have been going up at the hands of the Federal Reserve—all in an effort to make the economy slow down and minimize inflation. These historically high wage growth numbers have been a huge contributor to inflation, since employers often pass their payroll costs back onto the consumer. Slower wage growth means lower inflation, which puts more money in peoples’ pockets: And that’s a wage gain in itself.
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