The future small business workforce: will labor shortages exist? The available evidence is less than perfect

Business Economics, Oct, 2004 by Bruce D. Phillips

Based upon 2,500 surveys mailed to small business owners of retail firms in 1998, 381 useable responses were received regarding the utilization of seniors in the retail trade sector. Forty-two percent of owners employed no seniors, while between one and ten percent of total employees were comprised of seniors for those owners who employed them (Peterson, 2000). Seniors, therefore, comprised a relatively modest proportion of the retail labor forces in the surveyed firms.

While about five percent of all workers were aged 65 years and over in 2002, about 25-27 percent of employees in trade and services were working part-time (e.g., 21-35 hours per week). (18) While many of these part-time workers are young workers aged 16-24, a growing proportion are older workers aged 65 years and over, based upon recent increases in LFPR. If potential labor shortages are to be averted, these percentages will have to increase because of the projected slowdown in labor force growth. To adequately interpret the above survey results, data on the supply of and demand for future retail/service workers is needed by age. If ten percent of future retail/service workers will be seniors, will this be sufficient?

If very young workers and older workers are more readily available to small business owners in the future, how likely are owners to hire older workers not yet qualified for Medicare, especially if they cannot afford to pay benefits? (19)

There are also a number of potential conflicts inherent in small firm owners' hiring of older employees and consultants. These include:

* mismatches between available employee hours and those desired by owners,

* benefit demands by employees versus what employers can afford to pay,

* location of the business vs. location of employees,

* skill mismatches between employees and owner needs.

Peterson (2001) indicates that many retail employers like seniors because they are "self-motivated," "disciplined," and "dependable." On the other hand, owners not wanting to employ seniors in retail trade complained about "physical limitations," "less productive," and "not adaptable" (Dennis, 2003). Only five percent of respondents complained that seniors "would only work part-time," and only eight percent of respondents spoke of the (high) "cost of medical benefits."

Will Immigration Eliminate Labor Shortages in Small Firms?

It is likely that future immigration will partially alleviate labor shortages in small businesses. The main determinants are the level of economic growth (e.g., higher growth implies the need for more workers), new business formation, the possibility of substituting capital for labor, and skill mismatches. The BLS assumes a future level of immigration similar to that of the 1990s, about a million legal immigrants annually, with some variation around that figure.

Small firm owners currently employ immigrants who are U.S. citizens as well as non-citizens. They are already a significant part of the small firm workforce. As shown in table 5, the percent of immigrants employed varies monotonically by firm size, from 18.4 percent in the smallest firms to 12.5 percent in the largest. (In the smallest firms with fewer than 25 employees, about 13 percent of the workforce is comprised of immigrants who are non-citizens). (20)