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Small businesses in America are running out of

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The pandemic forced Freed Bodyworks, a wellness center offering services such as massage therapy, yoga, acupuncture and mental health counseling, to close for four months.

But when it reopened in the summer of 2020, the customers were back, but not the employees. Almost two years after her, owners Frances Reed and Jessica VonDyke were forced to close the store.

“We couldn’t hire anyone,” Reed said. “We have never had a problem with demand for our services. It was 100% a matter of supply for us.”

Before the pandemic, Freed Bodyworks had 20 practitioners and was booking up to 550 clients a month. That he restarted with a minimal crew of eight people, too few to bring in enough income to sustain the business, Reid said.

Two of the former employees have gone on to graduate school, three have moved to cheaper areas, and several have had to take care of their families. Additionally, the closure of in-person instruction at massage schools has dried up what was once a promising pipeline of emerging talent.

“We were able to hire three full-time employees during the entire period from reopening to closing,” he said.

Reed is not alone. Today, small business owners across the United States are facing severe labor shortages that experts warn have reached crisis levels.

A recent survey by the National Federation of Independent Business found that nearly half of small business owners said they were still unable to fill open vacancies in July, the highest number in the survey’s nearly 50-year history. A number close to the highest.

NFIB Chief Economist Bill Dunkelberg said:

The current labor market presents challenges for employers of all sizes, but small businesses lack access to the cash flow, credit and economies of scale enjoyed by larger companies Ammo is running out in the fight to get. This makes it difficult to offer things like competitive wages and bonuses for his sign-on.

“It’s probably true that big box stores are paying more,” said Harry Holzer, a public policy professor at Georgetown University.

This puts independent businesses at a serious disadvantage. “If they operate on tight margins, they may not be able to afford to raise wages to attract more workers,” Holzer said.

Inflation is a ‘double hit’ for small businesses

Susan Sarich founded SusieCakes in 2006 and has grown it into 26 bakery chains. Most of them are in California. But her headcount has plummeted from nearly 500 before the pandemic to just over 200 now, and rebuilding that number is becoming increasingly difficult.

Gas prices in California are still about $5.30 a gallon, so many prospective employees say they can’t afford to commute more than an hour, Sarich said.

“We increased hourly wages by nearly 20%. [but] The cost of living is exorbitant,’ she said.

To combat this, her bakery is closed two days a week with reduced hours. She has cut back on her product offerings, including dropping customer favorites such as Iced Her Sugar Her Cookies based on her beloved family recipes.

“There was demand, but we were short of people, so we had to move pretty quickly to a model that cut labor. I did,” she added. She’s still down about 15% from pre-pandemic earnings.

Eric Groves, CEO of Alignable, an online platform for small businesses, said as consumers become more cautious, owners are facing higher inflation, rising costs and declining sales. He said he was in trouble.

“We are getting this double blow,” he said. “People are getting harder to find and costs are rising.”

According to a recent Alignable survey, only about one-third of small businesses are making more than 90% of their pre-pandemic revenue, Groves said. This is worse than the results of a similar survey conducted last year, with 42% saying he had recovered more than 90% of his pre-pandemic business.

“They sometimes have to dial back the hours they are open,” Groves said. It’s constant pressure.”

Workers are still in the driver’s seat — for now

Several factors combine to work against small business owners as they try to increase headcount.

The unemployment rate fell to 3.5%, reaching its lowest level in half a century in February 2020, according to the July jobs report. It also shows that the labor force participation rate fell slightly to 62.1%.

“It’s not that healthy people of the right age are looking for work,” said David Dollar, a senior researcher at the Brookings Institution.

There are many factors behind this, economists say: a continuing shortage of care workers, declining immigration rates and fears of a spreading pandemic.

“A lot depends on people’s confidence that they have the coronavirus under control,” Dollar said.

Edward Fox owns two franchises of Tradebank, a business barter service located in Wichita and Nashville, Kansas. When the Nashville-based sole employee retired at the end of 2020, he spent his six months searching but gave up and closed the office. As a result, he estimates he lost $200,000 to $300,000.

“I was hoping that the job market would recover and that more people would apply, but it just didn’t work out,” he said.

Fox said his ability to raise salaries was constrained because Covid had knocked out about 75% of his business, wiping out many of the barter deals his business brokered. With no one on site in Nashville, it was hard to recoup that revenue. “I think everyone is looking for the same workforce pool, but it’s hard,” he said.

“I think employees these days want more flexibility. I don’t think managers want to give up their control over their employees,” he said. “I think there is a new reality that we have to face there as well.”

Big hit from small business losses

Losing a single small business could be a drop in the ocean for the U.S. economy, but if a small business like Reed ultimately fails due to labor shortages, the situation could turn into an economic tsunami. Small businesses account for nearly half of private sector employment and contribute more than 40% of the United States’ Gross Domestic Product.

“It would be a shame to see them go out of business. They wouldn’t want the retail sector to become more and more concentrated,” Holzer said.

With vacant stores settling on main streets across the country, consumers have fewer choices where to spend their money and workers have fewer places to look for work.

“When you lose your job, it reduces the health of the local labor market as a whole,” says Holzer. “It’s good to have options for workers as well as consumers.”


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