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Nov. 7, 2021, 11:20 a.m. EST

‘I have never seen this before in my life’: This small business owner raised starting pay, but it’s not enough in today’s labor market

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By Elisabeth Buchwald

The website for Sugar Shack doughnut shop in Saginaw, Mich. doesn’t immediately show off colorful hand-baked sweet treats. Instead, the landing page darkens and a pop-up message tells visitors,  “We are hiring! Apply online and join the Sugar Shack team today!”

That message has been up for more than a month, said Steven Hartwell, who co-owns the shop with his wife L’Oreal. 

In an ideal world, the shop’s website would feature a pop-up message encouraging customers to place orders. But Hartwell hasn’t had nearly enough staff to fill any orders lately. In fact, he recently had to close the shop for nearly three weeks because he didn’t have enough workers.

Labor shortages are becoming increasingly problematic for small business owners and publicly-traded companies alike. There are still some 10.4 million job openings in the U.S. and some 7.4 million people unemployed, according to the latest figures from the Bureau of Labor Statistics.

Given the tightness of the labor market, many employers have increased wages to attract workers. Collectively, employers raised wages and salaries by 1.5% last quarter .

For some small business owners, wage increases aren’t a viable option 

Hartwell, who started Sugar Shack nearly four years ago, said he originally thought that when expanded pandemic unemployment benefits expired after Labor Day, “everybody was just going to magically come back to work.” 

“But that did not happen,” he said. He only saw “a small uptick in applications.” To lure more applicants, Hartwell recently raised the starting pay for his shop’s 18 job openings to nearly $12 an hour from $10.75 an hour. 

But Hartwell, like many other business owners, doesn’t necessarily have the upper hand in these negotiations. He said one applicant told him he wouldn’t take less than $13.50 an hour. “Because we have so many positions to fill, I just relented,” he said.

But he can’t match the $15 an hour that the nearby McDonald’s /zigman2/quotes/203508018/composite MCD +2.74% and the fast-food chain Culver’s offer. “I’ve had people come to my company, apply for the job, and they say ‘I want to make $15 an hour.’ I have never seen this before in my life.”

Both McDonald’s and Culver’s did not respond to MarketWatch’s requests for comment.

Hartwell says he has rewarded loyal employees with cash bonuses, but he cannot afford to pay his entire staff $15 an hour starting wages. He’s also been dealing with employees quitting, job applicants not showing up for interviews, and new hires not showing up for work after he hires them.

On top of the staffing problems, Hartwell found out last week that his supply costs are going to increase by more than 10% as a result of shortages stemming from supply-chain disruptions. That includes necessities like boxes used to package doughnuts and the mixes to make them.

Some small businesses may have to close their doors permanently if labor shortages persist 

Hartwell’s story is “similar to what we hear every day from small employers looking to fill positions,” said Holly Wade, executive director at the National Federation of Independent Business research center.

Half of all small businesses can’t find workers to fill open jobs and say record shortages of labor and supplies are cutting into their sales and profits, and hindering their recovery from the pandemic, according to a recent report by the NFIB.

If labor shortages continue and supply costs rise, many small businesses will be forced to close in the next year, Wade said. “It’s a terrible circumstance to face for small businesses who made it through the height of the pandemic with already limited resources,” she said.

“Unfortunately, small businesses often aren’t able to dip into a broad array of funding buckets, utilize bulk ordering to prioritize their shipments or receive the kind of tax preferences that large businesses do,” said Molly Day, vice president of public affairs at the National Small Business Association, a trade group.

“Policymakers could ease the issue somewhat by increasing parents’ access to quality, affordable childcare and seeking reasonable immigration reforms that will help address the labor shortage,” Day added. 

Hartwell is set to reopen Sugar Shack on Monday but is still short by four employees. For now, that means he won’t be able to serve breakfast to customers and may have to close on some weekends. But he’ll certainly take what he can get. 

“In this pandemic, I have hope against hope,” he said. “I have been homeless, I have been broke and I’ve seen God walk me out of anything.”

His message to fellow small business owners: “Times are not going to be like this always. We just have to keep on pushing.”

$ 244.52
+6.52 +2.74%
Volume: 5.26M
May 24, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$176.03 billion
Rev. per Employee

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