Small businesses see wage pressure easing

While the labor market is still tight, some owners aren’t feeling like they need to hike pay as much as they did earlier in the pandemic.

Federal Reserve Chair Jay Powell has said that in order for inflation to come down to the central bank’s 2% target, wage growth will have to slow down. Not completely, he said, but to a level that’s “more sustainable over time.”

While wages are still elevated, wage gains have been slowing for the last two years, according to the Labor Department. And some business owners say that the pressure to hike wages is easing.

Things have been pretty busy at Ekiben, a sandwich chain in Baltimore. Owner Steve Chu said he’s working on opening up a new location and developing a different restaurant concept. That means he’s doing a lot of hiring.

“All the time,” Chu said. “We’re hiring 24/7, 365.”

In order to find talented people to fill positions, Chu said he has to offer them competitive wages, adding that during the pandemic, he raised wages around 40% to 50%. Back then, Chu said he had no other choice.

“To be able to compete with Target or Walmart, we had to pay somewhere in the $20-an-hour range,” Chu said. “So it was a very, very hard shock to everybody.”

That includes Chu’s customers; Chu said he raised menu prices to cover the higher wages. And some customers felt sticker shock.

“We thought it was going to be awful,” Chu said. “We thought we were going to get a lot more blowback than we did. But the second we explained why we were doing it, our guests were really receptive and really supportive.”

And now, since Chu has already raised wages, the bandage has been ripped off.

“The pressure is not there to raise wages as much, because we already pay higher than our competitors,” Chu said.

Not every business has been able to keep up with the competition. Jennifer Niezgoda runs a market near San Diego called Al Fresko. She hired a couple new workers in April, and she’s been paying them $17 an hour — just above the California state minimum.

“You know that these people are qualified for more, but it’s also challenging for us to be able to afford to pay those wages, honestly,” Niezgoda said.

Niezgoda said she’s been thinking about other ways of boosting her employees’ compensation. 

For example, her business runs events, including wine tastings, wedding showers and corporate parties — both in the back of her market and at clients’ homes. Niezgoda’s employees can earn a lot more working those events, she said, because her clients are footing the bill.

“If they want a server to stay, we can charge a different wage than the minimum wage hourly,” she said. 

And for a lot of these events, clients will tip to the tune of a few hundred bucks. “Then that service or gratuity, plus the higher hourly [pay], goes directly to our staff,” Niezgoda said.

Some businesses have been stretching their payroll dollars by finding workers who want part-time positions.

“All of our team members want to be able to show up about 30 hours a week,” said Madeline Reeves, the owner of Fearless Foundry, a marketing and consulting firm near Seattle.

Last summer, Reeves decided to only hire part-time employees. She’s expanded her staff from three to nine. 

Reeves said a workweek that’s 10 hours shorter than usual is a big selling point for her new hires.

“Some of us put that time towards our families,” Reeves said. “Some of us put that time towards other creative endeavors, other clients, other projects that they have outside of Fearless.”

Reeves said there are plenty of benefits for her business too. For one, part-time employees are a lot cheaper than a full-time staff.

“Running a payroll that at times was upwards of $80,000 a month, on top of 401(k)s, on top of PTO [paid time off], all the things that I offered people — it literally didn’t work,” she said.

And her part-time staff is also more productive.

“If you’re going to be showing up for 30 hours, those have to be 30 really clearly defined, productive hours where we’re getting great work from you,” Reeves said.

Over the past year, Reeves added that nobody has left the company voluntarily, which she sees as a sign that her new staffing model is working.