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Regional Matters

December 21, 2017

Fifth District Businesses Surveyed on Employment and Wages

For the last several years, we have conducted a special survey asking businesses about their experiences hiring workers and their future plans for employment and wages. Our most recent results showed that most firms plan on increasing hiring in the next year, and most firms plan on raising wages to attract and retain workers, though not for all positions. The survey results also highlighted the increasing difficulty firms are having finding workers with the necessary skills and showed some of the ways that firms are responding.

This year, 195 firms from across the Fifth District responded to our survey in November. As shown in the chart below, 53 percent of firms plan on increasing employment over the next year. This was a large change from 2016, when 40 percent of firms planned on increasing employment. Furthermore, the number of firms planning on leaving employment unchanged declined from 48 percent in 2016 to 39 percent in 2017; only 7 percent of firms plan on decreasing employment over the coming year, the smallest percentage in the last four years.

Firms gave a variety of reasons for why they wanted to increase employment. As shown below, the most common factor was that firms expected high sales growth, with 90 firms choosing this as one of the top three most important reasons for planning to increase employment and 83 of them citing it as the most important factor.

The next most important factor was firms needing skills not possessed by their current staff. Only six firms ranked this as the most important factor, but 54 firms selected this among their top three factors. Forty-eight firms said that their current staff were being overworked and that was an important factor in increased hiring plans.

Interestingly, no firms selected the response “labor costs have fallen” as a reason for planning to hire. In fact, firms are increasingly turning to wage increases to attract and retain employees. Over 70 percent of firms have raised starting wages to attract new hires, though only 21 percent are raising wages for all job categories. Only 26 percent of firms said they were not raising starting wages to attract new workers in 2017, which was down from 38 percent in 2016 and 51 percent in 2015.

Existing employees are also more likely to see wages rise more than in previous years, according to the survey results, although the results were not as positive as those for new hires. Higher than usual wage increases were used by 59 percent of firms to retain employees in some or all job categories in 2017, compared to 48 percent in 2016. However, only 21 percent of firms raised wages more than in the past few years across most job categories.

The survey also asked a few questions about labor shortages and how firms have tried to cope with the problem. The chart below shows the increasing role that the lack of skilled workers has played in restraining firms’ hiring plans. In 2014, only 28 percent of surveyed firms said that the inability to find workers with necessary skills was one of the three most important factors holding back their hiring plans. This proportion more than doubled to 62 percent in 2017. The share of firms selecting this as the most important factor grew from 13 percent in 2014 to 39 percent in 2017.

In order to better understand the impact of this lack of skilled workers on businesses, the survey asked firms what strategies they have used to counter this problem. The most common approach, selected by 69 firms, was to focus on retaining existing employees to reduce the need for hiring. This was followed closely by raising wages and bonuses to attract new employees, which was selected by 65 firms.

Other popular strategies included increasing advertising, hiring through temp agencies, and hiring less-skilled workers but giving them additional training. There was also a smaller group of 32 firms that invested in technology to reduce the need for new workers. Among the firms that specified other approaches outside of the given choices, one said that they started an apprenticeship program while another said they were looking to move some of their work to other parts of the country where they could find labor.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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