The labor shortage isn’t Main Street’s biggest problem

The delta variant hasn’t significantly altered the outlook of America’s small businesses, but the conditions that the Main Street economy is operating under as it attempts to fully reopen are weighing on business owners across the country.

Half of small business owners (50%) say it’s gotten harder to find qualified people to hire compared to a year ago, according to the Q3 2021 CNBC | Momentive Small Business Survey. Almost one-third (31%) say they have open roles they have not been able to fill for at least three months, up from 24% last quarter and 16% in Q1 2020.

The labor situation has resulted in 41% of small business owners saying they are currently experiencing a rising cost in wages, according to the new CNBC | Momentive survey, which was conducted between July 26 and August 3 among over 2,000 small businesses across the U.S.

“It turns out that revving the economy back up after months of shutdowns, layoffs, and work-from-home is really disorienting,” said Laura Wronski, research science manager at Momentive. “Unfortunately, there’s no on-or-off switch, and these labor and supply shocks that we’re seeing are totally expected on our path back to normal, even if they are disruptive in the short term.”  

The national unemployment rate is heading in the right direction, and the most recent jobs report from last Friday showed the strength of the recovery in hiring. But job openings have surged to over 10 million, according to the Labor Department, the highest level on record, and it has been implied that there are over one million more jobs available than people who are searching for them.

“That hypergrowth in the hiring rate means that workers have the bargaining power to hold out for better wages before returning to work, or to leave their current jobs for higher-paying opportunities. That’s especially tough for small businesses, who likely don’t have the same resources as their bigger competitors,” Wronski said.

According to the survey, only a minority (24%) of small businesses expect to increase staff in the next year, and in the past two to three months, only 16% of small businesses say they have increased staff.

Jill Bommarito, founder and CEO of Detroit-based Ethel’s Baking Company, which supplies national companies including Whole Foods, UNFI and Dawn Foods, is facing those pressures, especially as national corporations raise wages to $15 and above, and add benefits like paying for college education.

“In small business, there are other ways to offer opportunities for growth and a faster path to growth and promotion, but it is tough to make everyone happy with wages,” Bommarito said, who is a member of the Goldman Sachs 10,000 Small Businesses Voices coalition, which has found similar business concerns in its recent survey work. “We have had to increase everyone’s wages twice across the board this year, and we were considered a leader.”

Workers are taking advantage of the tilt in the balance of power in the labor economy.

“We are getting people that are signing up to interview and canceling or saying they have 14 interviews, or saying ‘I have three opportunities, can we talk about hourly wages before I even come in and see you?'”

The Q3 CNBC | Momentive survey finds that 32% of small business owners say they have raised wages in the past three months to attract workers, while 27% have offered more flexible hours, and 24% more on-the-job training. Fewer have offered additional benefits, including enhanced medical (8%), educational benefits (7%) and child-care or elder-care benefits (5%).

Ethel’s Baking Company has added long-term and short-term disability, dental and vision, and $2,000 in education, but it can’t afford to pay for the college education of workers like a Target or Walmart recently announced they are doing. “We can’t offer a college education. Everything is going up for us across the board, our raw materials, our packaging, our casings, logistics, wages, benefits, all of that, and it hasn’t been the typical 1% to 2%, but 18%,” Bommarito said. 

While the labor shortage is a big problem for small businesses, the CNBC | Momentive survey results show that it is not even as extreme as the supply shortage and corresponding supply chain disruption that small businesses are still having to navigate.

Four in ten small business owners say they’re currently seeing rising wages for employees, but seven in 10 are experiencing a rising cost in supplies.

“The worst part is that many small business owners are getting hit by all these factors at once,” Wronski said.

She noted that 86% of those who say they’re experiencing rising costs of wages also say they’re experiencing rising costs of supplies.

“Unlike their bigger competitors, small businesses aren’t going to be able to eat those costs for very long. If they haven’t already, they’ll eventually start raising prices in order to keep going,” Wronski said.

The survey finds that more firms (39%) have raised prices than those that have raised wages (33%), and many more (38%) say they may raise prices in the future if cost pressures remain.

Ethel’s revenue is up a lot, and across the corporate landscape there are reports of record profitability as many firms have been able to pass along price increases to customers in this early phase of an inflationary period. With the hit to her firm’s profitability from higher wages and benefits, and higher input prices, Bommarito said it feels “inevitable” that more small businesses like hers will raise prices, too. 

The tough operating conditions have not, though, led to a major decline in small business confidence. The Q3 2021 CNBC | Momentive Small Business Survey finds the overall business sentiment on Main Street unchanged from Q2 2021, even as the Delta variant has become a bigger concern to the economy.

Owners describing business conditions as good (36%) was up from last quarter (34%), while those describing business conditions as bad fell one percentage point to 17%. The percentage of small businesses that expect revenue to increase over the next 12 months (45%) and those who expect revenue to stay the same (34%) were unchanged from Q2 2021.

A majority of businesses (66%) say they can continue to operate for more than a year under current conditions, according to the survey.

The delta variant could still change Main Street confidence, especially if consumers retreat. The CNBC | Momentive survey finds at this point only 21% of non-small business owners surveyed as part of the research saying the delta variant has changed their outlook on the rest of 2021 by “a lot.” But 41% say it has changed their outlook “a little.”

The response from small business owners to the delta variant question was similar, with 19% saying it has changed their outlook “a lot” and 37% saying it has changed their outlook “a little.”

Register: CNBC’s Small Business Playbook

This Wednesday, August 11, join the head of the Small Business Administration, Isabella Guzman; Kevin O’Leary, host of CNBC’s “Money Court”; and the NFL’s Aaron Rodgers for actionable advice to grow a small business in the new economy. Register here.