It goes without saying, the job market has undergone considerable transformations and faced numerous obstacles in recent years. As the economy grapples with the lingering consequences of the COVID-19 pandemic, small businesses in Massachusetts are confronting various challenges related to recruiting and retaining staff in the face of looming economic uncertainties.
In an effort to provide clarity and guidance on navigating the present labor market, we will delve into recent developments and long-term trends that may be influencing your capacity to attract workers.
The Near and Long-Term Job Market In Massachusetts
According to a recent Boston Herald article, John Regan, CEO and President of the Associated Industries of Massachusetts (AIM), has expressed serious concerns about the state’s workforce challenges. The organization has witnessed a decline in business sentiment among its members for two consecutive months, and Regan anticipates a bleak future for employers in Massachusetts due to the nationwide worker shortage and increasing job vacancies.
Regan warns that the state is heading towards a demographic crisis, exacerbated by the COVID-19 pandemic and shifts in work attitudes.
The primary concern for businesses is the lack of applicants, despite active hiring efforts. Massachusetts has roughly 115,000 more job openings than unemployed workers, with 240,000 vacancies compared to 124,500 unemployed individuals. However, this discrepancy is just the beginning.
According to Regan, the state will require a significant increase in workers to meet the demands of expanding industries such as life sciences and robotics. Unfortunately, the projected job growth will likely outstrip the available workforce. Despite the Biden Administration’s celebration of over half a million jobs added in January and a 50-year low in the unemployment rate, Massachusetts is still facing challenges.
Regan believes that it is not the lack of desire to work in Massachusetts, but rather the state’s inherent issues that create barriers for potential employees. Housing shortages, inadequate public transportation, and exorbitant childcare costs make it difficult for workers to settle in the Bay State. Increasing costs in housing, energy, and healthcare, combined with limited childcare and elder-care support, may prompt workers to seek opportunities in other states.
The Bureau of Labor Statistics February Jobs Report
To compound the tight market conditions in MA, the BLS February jobs report was released on March 10th, 2023, and showed that the U.S. labor market continues to outperform expectations, with more than 311,000 new jobs added.
Key numbers from the report compared to the previous month are (Feb vs Jan):
- Nonfarm payrolls: +311,000 vs.+504,000
- Unemployment rate: 3.6% vs. 3.4%
- Average hourly earnings, month-on-month: +0.2% vs. +0.3%
- Average hourly earnings, year-on-year: +4.6% vs. +4.4%
- Labor force participation rate: 62.5% vs. 62.4%
- Average weekly hours worked: 34.5 vs. 34.6
Source: Yahoo Finance.
This report demonstrates that the U.S. labor market is continuing to recover, with job gains being widespread across various industries, even if unemployment ticked slightly higher – up to 3.6%.
This very slight increase in unemployment is mainly due to two factors, businesses are cutting payroll or slowing down their hiring, and more people are re-entering the workforce, specifically women. This national slowdown in hiring may serve as a reprieve for MA small businesses, but it comes with a major caveat. If the economy is slowing, then small businesses may be less likely to higher in the near-term when facing economic uncertainty.
Job Posting Boards Are Starting To Report A Slowdown
If we are in fact heading into a recession, the online jobs boards, not the market or bond yields, may serve as the leading indicator.
Data from online recruiting companies, such as ZipRecruiter Inc. and Recruit Holdings Co., are showing a decline in job postings on their platforms. Their data actually tends to lead the government reports by a couple of months. According to ZipRecruiter’s chief economist, Julia Pollak, “the slowdown may soon become evident in employment data, with employers expressing concerns about overhiring.” Additionally, The National Federation of Independent Business and LinkUp are also reporting a sharper drop in job postings.
Again, this news is not promising for small businesses in Massachusetts because the rise in unemployment and available candidates will be attributed to an economic slowdown, not to a larger pool of available skilled workers. To remain financially viable, small businesses won’t want to hire the now-available talent.
Pressure on Wages Is Heavily Impacting The Labor Force
Everyone knows the cost of living in Massachusetts is relatively high when compared to other areas of the country, so if there are national pressures on wages, those issues will only be compounded for Massachusetts employers and employees.
Overall, wage growth remains a concern amongst workers nationally, with average hourly earnings increasing by only 0.3% in February, which was below the expected 0.4% rise. When adjusted for inflation, real wage growth remains stagnant, putting pressure on workers amid the rising cost of living. This pressure will force employed workers to possibly look for other opportunities out of state that offer more compensation and a lower cost of living. So even though the jobs to job seeker balance may be shifting, workers are still needing higher compensation, a real concern for small businesses in Massachusetts.
What Can Small Business Leaders Do in This Complicated Job Market?
Even with potential near-term cooling in the jobs market the fact that an economic downturn will be the primary cause will make it tough for MA small businesses to fill any open positions.
Once the economy recovers, the long-term outlook for employers in MA is still very complex, and small businesses looking to hire will face many challenges because the labor market will be increasingly competitive. Job seekers are looking for higher wages and better benefits to keep up with the growing costs of living in Massachusetts. Small businesses in the state, which often have limited resources, may struggle to compete with employers in other states with a lower cost of living and with larger corporations writ large that can offer more attractive compensation packages.
To navigate this, as a small business leader, you need to proceed with caution. The economy could be slowing, even heading into a recession, so it may be best to only hire essential positions at this time. When you are hiring you will want to be creative. Offer competitive benefits, flexible work arrangements, and emphasize your strong company culture. And even after all that, don’t be surprised if you still need to offer more compensation in the face of rising inflation and higher costs associated with living in Massachusetts.
These are trying times as a small business in Massachusetts. Do not hesitate to reach out to us with any questions or concerns. We’re here to help.