Small Business Employment Index Drops Amid Ongoing Labor Woes

The latest NFIB Jobs Report reveals a mixed picture for small businesses in the U.S., as the Small Business Employment Index has noticeably dipped. The index dropped 1.9 points to 101.6 in March, although it remains above both last year’s average of 101.2 and the historical average of 100. Small business owners may find these trends critical as they navigate recruitment challenges and compensation strategies in a fluctuating economic landscape.

In March, the hiring picture remained complicated. Approximately 32% of small business owners reported unfilled job openings, a slight decrease from February but still higher than the historical average of 24%. This included 27% of owners looking for skilled workers, down 1 point, while 12% were in search of unskilled labor, an increase of 2 points from the previous month. The job market continues to show signs of stagnation even though a net 12% of owners plan to add new jobs in the upcoming three months, a figure unchanged from February’s numbers.

Bill Dunkelberg, NFIB’s Chief Economist, pointed out that while hiring is not extensive, small businesses face persistent challenges related to both labor quality and cost. “While small businesses are not hiring extensively, they continue to face difficulties related to labor cost and quality,” he commented, suggesting that improving economic conditions could prompt more hiring in the near future.

The stark reality is that roughly 52% of small business owners reported hiring or attempting to hire last month, showing a decrease from the previous month. A significant 87% of those actively hiring indicated they encountered few or no qualified applicants. Specifically, 22% claimed to have found few qualified candidates (a drop of 3 points), while 23% reported having none at all, an increase of 2 points.

In addition to challenges in filling positions, small business owners are increasingly concerned about labor quality, with 15% citing this as their most pressing issue, consistent with findings from February but above the usual historical average of 12%. Notably, the proportion of owners who highlighted labor costs as their primary concern is on the rise, now reported by 10%, indicating a shift in priorities.

Compensation adjustments reflect the current challenges faced by small businesses. A net 33% reported raising compensation levels, slightly down from February. Additionally, only 18% plan to increase pay in the next three months—a dip of 4 points and the lowest since July 2025. Despite these declines, levels of compensation remain higher than historical averages, which small businesses should keep in mind when considering their hiring strategies.

For small business owners, this report illuminates several key takeaways:

1. Hiring Landscape: Despite a dip in the Employment Index, more owners are planning to hire. However, competition remains steep, and too few skilled workers could stifle growth.
2. Compensation Considerations: Even though compensation trends are softening, the necessity to remain competitive in attracting talent is critical. Owners may need to balance their financial limitations with the need to enhance pay to attract qualified candidates.
3. Quality vs. Cost: Both labor quality and costs are rising concerns that business owners must navigate. Finding ways to improve workforce quality while managing costs will be essential for continued operation and growth.

The NFIB Jobs Report provides a crucial overview for small business owners grappling with hiring challenges amidst current economic uncertainties. Adapting strategies for recruitment and compensation will be essential to thrive in this evolving environment.

For those looking to explore the complete details of the NFIB Jobs Report, the full document is available here.

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This article, "Small Business Employment Index Drops Amid Ongoing Labor Woes" was first published on Small Business Trends

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