Enterprise -- Special Report: Labor Crunch
How little companies manage to reel in the big talent
From a Milwaukee bakery to a medical-supply company in Phoenix to a software maker in Massachusetts, the lament is the same: Where are the workers to feed the economy's continuing growth? Prosperity, it turns out, has a downside. A survey released last month by Coopers & Lybrand found a staggering 80% of businesses with less than $50 million in sales reporting a "very serious" or "somewhat serious" shortage of workers. And 69% considered the dearth of skilled employees a potential barrier to growth--up from 59% a year ago. "We're hiring people today that we wouldn't have looked at twice before," says Darrell Tannett, president of Med-Assist, a Phoenix-based medical supplier.
Unless the forecasters are dreadfully wrong, there's no relief on the way. "Given the economy's strength, I don't see any letup in job growth," says James W. Coons, chief economist of Huntington National Bank in Columbus, Ohio. As the economy continues to add more new jobs than workers, April's jobless rate fell to 4.3%--a hefty 0.4% drop from March. By yearend, Coons projects unemployment could dip a bit lower still, to about 4.2%.
Where has the crunch hit hardest? In the West and Midwest. Employment costs in those regions are rising fastest--up 3.8% in the year ended in March, compared with 3.3% nationwide. Colorado, Iowa, Minnesota, and Nebraska have jobless rates hovering around 3%. Among the 51 metropolitan areas of 1 million or more residents, unemployment has dipped lowest in Minneapolis-St. Paul (2.2%), Phoenix (2.5%), and Denver (2.7%). Of the country's 325 metropolitan areas, 98 had unemployment rates below 3.5% in February.USE YOUR IMAGINATION. Small businesses, always hard-pressed to compete with major corporations on compensation, find themselves at a greater disadvantage in this environment. Companies with fewer than 100 employees in 1997 laid out, on average, $15.37 per hour per worker, while those with 500 or more spent $24.75 per hour, according to Labor Dept. data. The answer for many smaller companies has been to come up with imaginative strategies to find and retain workers. Sometimes, these efforts reap unexpected rewards. A Silicon Valley public-relations firm, for example, has been hiring career changers to fill its labor gap--only to discover the mix of their diverse experiences yields a new, companywide creativity (page 8).
In computers, software, and other cutting-edge industries, small employers are lucky to find anyone at all. About 190,000 high-tech jobs are vacant at small and midsize companies, according to Meta Group, a market research firm in Westport, Conn. Scott Sassone, director of business development at Unica Technologies Inc., a software firm in Lincoln, Mass., recalls how the firm used to have its pick of workers. Now, the people Unica wants most are hired by big companies and are "reluctant to take a risk on a startup," he says. Salaries for information technology personnel, meanwhile, are rising about 20% annually, according to Meta.
To save money and find recruits, Unica is reaching down further into the labor pool. The six-year-old firm now hires programmers just out of college--a strategy that keeps salaries down but creates a big expense up front. New grads cost about $10,000 each to train and need more supervision.
Technicians and professionals head the list of hard-to-find workers by a good stretch, with 54% of fast-growth companies reporting shortages in the Coopers & Lybrand survey. But 33% of these firms say they're having trouble finding sales and marketing executives, and 27% are scrounging for semi-skilled production workers.
In search of lower-skilled workers, employers are looking in even less traditional places--hiring welfare recipients from government-sponsored workfare programs, recruiting and training recent high school grads, and tapping older workers.
Even non-English-speaking refugees have become prize hires. Four years ago in Fort Wayne, Ind., Simon D. Novosel, whose family comes from Croatia, wanted to help out Bosnian Moslems brought over by the city's Catholic Charities. As a partner at Midwest Custom Services Inc., a chemical powder processing plant, Novosel hired some. The refugees have turned out to be loyal and hardworking. Equally important, they have supplied a steady flow of relatives and friends, he says. With Fort Wayne's unemployment rate at 2.5%, they are his salvation. "Right now, we're almost exclusively using these refugees," says Novosel, who speaks fluent Serbo-Croatian. He has since added refugees from Iraq and Burma.TRAWLING THE WEB. Retraining is also hot. Even when making big changes in technology, some companies find it simpler to stay with those they know. A Massachusetts toy distributor converting its business to the Web has decided to retool its entire existing workforce from manual systems to fully automated ones (box). So far, all but one have made the transition.
While small businesses still lag big ones in recruiting online, the labor crunch is pushing them onto the Web. It's a logical place to look for Web-savvy workers, obviously, but the Net (in all its forms) is also becoming a good way to advertise positions and pick up resumes for all kinds of workers (page 12). In some regions, companies and communities are collaborating on the Web to induce workers to relocate. The daVinci Project of Central New York (www.davincitimes.com), for example, provides a common Web site where a consortium of companies, many of them small employers, try to attract sought-after engineers to the Syracuse area.
Money still talks, of course, but companies are finding that the best way to use their scarce funds isn't always to offer recruits higher wages. Some spend on improved benefits or "targeted increases" aimed at raising the pay of--and retaining--key employees. Bonuses are a great crowd-pleaser, too. In Microsoft Corp.'s backyard, Bellevue (Wash.) software maker Interactive Objects Inc. attracts software developers with royalties on the tools they create. AccuData America, a database-marketing company in Fort Myers, Fla., pays a finder's fee of up to $2,000 to employees who bring in new hires. "The quality of the applicants is better," says Human Resources Director Jill Corcoran. "Our employees do the weeding out for us."
Sometimes, flexibility and quick decision-making can give a small company an edge over larger, more layered corporations in offering creative lifestyle perks that win over prospective employees. Toronto-based ICE, a communications and marketing company with offices in New York and Ottawa, lets employees get 30-minute, on-site back rubs every two weeks. Reality Bytes Inc., a computer game developer in Cambridge, Mass., maintains a well-stocked refrigerator and lets employees roll in as late as 10:59 a.m.
But not every labor problem has an easy solution. Some small-business owners simply get crushed by the crunch. Until last fall, Eric Dobke ran Dobke Bakery in Milwaukee, which his father started in 1929. He grew so frustrated with the chronic shortage of qualified workers that he decided to sell the bakery. "We just didn't get any applications," says Dobke, 61.
The new owner, Ken Loges, 56, has solved some of his labor problems by employing his two grown daughters. But when he advertised for a baker, he got only one nibble. And that applicant never showed up for the interview.
Change the details and it's the tale of the butcher and candlestick maker, too. About all a small-business owner can do is keep tinkering with the ingredients, adding a pinch of creativity here, a dash of flexibility there--and hope for a little bit of luck.By Kathleen Madigan and Robin D. Schatz, with Edith Updike in New YorkReturn to top