Jose Contreras, the human resources director for Shrimp Basket, a group of seafood restaurants based in Pensacola, Florida, tried for six months to find enough workers for the busy summer season. But it was to no avail.
Traditional methods such as paid ads on job sites and hiring bonuses did not bring in enough applications, so last month he decided to get more creative and give away a new sport utility vehicle worth almost $23,000 in a raffle.
“When you compare the cost of a new car to not having workers to take care of our guests, and risking having to close the restaurant down or go to take out and delivery only, it’s really not that big of an investment,” Contreras said.
The car promotion led to a spike in job applications, but more than half the roles he had hoped to fill are still vacant.
Shrimp Basket, which has 20 locations, is among the 48 per cent of small businesses that had open jobs in May, according to the National Federation of Independent Businesses, and their recovery from the Covid crisis is contingent on filling them.
As a shortage of workers gripped the economy this spring, national chains including Costco, McDonald’s, and Chipotle quickly raised wages and offered incentives to lure workers, such as signing bonuses and contributions to college tuition fees.
Some of those efforts proved successful. The labour department reported on Friday that employers hired 559,000 workers in May, almost twice as many as in April, but still below economists’ expectations.
However, the improvement in hiring was fuelled by sectors such as warehousing, manufacturing, transportation and healthcare. The pace of job gains in the leisure and hospitality industry, home to a large chunk of ‘Mom and Pop’ operations, fell in May to 292,000 from 328,000 a month earlier.
Small business owners, many of them still tackling financial difficulties sparked by Covid, are often unable to match the incentives offered by large corporations, leaving them struggling to compete for talent.
“Small businesses are feeling the same pressures but do not have access to as wide a tool kit to address it,” says Daniel Zhao, senior economist at jobs site Glassdoor.
Zhao added: “They do not have access to as wide a geographic talent pool, and then, on top of that, in general have less financial cushion to change compensation to attract workers.”
The Federal Reserve said that the Covid crisis forced 200,000 more small businesses to close last year than it would have otherwise expected. Economists predict that still more could collapse as unpaid rent bills and emergency loans start coming due.
Small companies had hoped for a profitable summer because of the rapid vaccine rollout, easing of pandemic restrictions, and consumers who are flush with cash thanks to stimulus cheques and an increase in the savings rate. But that is contingent on them finding enough workers.
Conservatives cite the plight of small business as the reason they are pushing to roll back a $300 top-up of unemployment benefits funded by the federal government. In some states, the additional payment means that the total amount of benefits on offer is more than the minimum hourly wage.
The funds are set to expire in September, but 4.1m Americans across 25 states with Republican governors will lose access earlier.
“[Entrepreneurs] shifted from one major challenge to another,” says Holly Wade, a researcher at NFIB. “From business restrictions to this challenge of trying to staff up and increase business operations. And you just can’t do it.”
The pay raises and incentives offered by large corporations have also made it more challenging for small businesses to retain the workers they already have, Wade added.
In an attempt to operate with fewer employees, some independent restaurants have overhauled their staffing models so that employees float between positions instead of having specialised hosts, servers and bartenders, according to restaurant headhunter Tonya Breslow.
Other restaurants are simplifying their menus so dishes can be made faster and by fewer cooks, said Breslow.
“We assumed that people would just matriculate back, but that didn’t happen so they have had to scramble and adjust,” she added.
Contreras said Shrimp Basket is thinking about putting QR codes on tables so that diners can order and pay for meals on their phones if the restaurant group is unable to hire enough staff to provide full table service.
“I understand the need for benefits and better working conditions and not going back to work because of fears of Covid, but at the same time the restaurateur has to pay their bills,” he said. “They need to get things going again. It’s a tightrope.”
Breslow said that the flow of candidates to her staff search firm Mis en Place had picked up in recent weeks after slowing to “a trickle” in April, but job seekers are holding out for offers that include elevated pay and flexible hours.
Nicole Marquis, founder of a vegan restaurant with locations in Washington DC and Philadelphia, raised the minimum wage for her employees to $15 on Tuesday. She said HipCityVeg has already seen a boost in new applications and morale among existing staff.
“It really just makes good business sense,” Marquis says. “We’re investing in our greatest asset, which is our people. So we will see a return on that investment pretty quickly I believe.”
Average hourly earnings rose to $30.33 last month, compared to $30.18 in April and $29.74 in May 2020, according to Friday’s labour department figures, offering evidence of higher pay across the economy.
Zhao says businesses that are unable to afford to invest in higher wages could find themselves at a disadvantage if the worker shortage lasts beyond September. That is when economists expect the end of expanded unemployment benefits and the reopening of schools to ease labour market strains.
However, companies that have learned to operate with fewer staff during this period of labour market strain could end up permanently reducing their headcount, which might prove a longer-term drag on the quest to achieve full employment.
“This is a much better problem to have, that we have more revenue coming in than we are staffed for,” Marquis says.