Small businesses are experiencing a growth in wage rate

According to the most recent Paychex review from the IHS Markit Small Business Employment Watch, small businesses experienced a growth in their average wages during 2017 of 2.81 percent compared to the previous year. The western region of the U.S. led the country in wage growth and Phoenix, AZ was the highest ranked city.

According to popular hiring website Monster, growth in wages typically happens within larger corporations and then trickles down into the smaller markets as small businesses try to offer more competitive salaries to potential employees. Historically, there is a pay gap between these companies but it is clear that both groups are having to work harder to gain new employment and that the wage trend should continue into 2018 as the economy continues to roar.

The reason for the surge is explained by recent data from the National Federation of Independent Business that has shown increasing sales and decreasing employment creating a need to raise pay to secure the best talent – or any talent at all. Small business-friendly tax policies, released late in 2017, have further stoked the flames of business and added even more reason for the small business optimism index to reach its highest year ever in 2017, topping the previous record set in 2004. The record year has also left a significant labor shortage in its wake that must be addressed.

Fortunately, as wages rise, more people will consider entering the job market that may have left during recent economic downturns. As NFIB Chief Economist William Dunkelberg explains, “Only an increase in the labor force and an increase in the participation rate can provide relief from the impact of labor shortages.” Small businesses could benefit greatly from the experience of older workers as well as the enthusiasm from recent graduates that may have been working in a job that is not utilizing all of their skills.