The jobs report for July is due out on Friday. If wages, which were up 3.6% over the past 12 months as of June, continue to head higher, these smaller companies may continue to face wage pressure.
The higher labor costs are especially challenging for smaller consumer firms that are still in the process of reopening and trying to return their business to pre-pandemic levels.
Mega companies have the financial wherewithal to withstand higher labor expenses better than smaller firms. They often have more cash on hand, which allows them to absorb the hit from higher costs such as rising wages. In this tight labor market, rising wages show that companies really need and want the help.
To be sure, some companies (big and small) have been able to pass on the cost of rising wages to consumers, many of whom are benefiting from increased hourly earnings, higher salaries and bonuses. But giant firms have notably been shrugging off wage hikes.
This could be of particular concern for extremely tiny companies. They don’t have as much leeway to cut back on hiring as larger companies that are more efficient and fully staffed. But small companies still need to offer competitive wages to attract new workers. That means that higher labor costs eat more directly into profits.
“Wage increases are more of a concern for mom and pop companies. It can be an issue for microcaps,” said Tim Miller, co-portfolio Manager at Scout Investments.
Finding good workers is not easy either, unless you are willing to pay them well and give out good benefits.
“While businesses are offering enhanced incentives, including finding creative ways to support working parents, operating short-handed has a ripple effect across their bottom line and the economy,” the bank said in its report.
Return to work?
Major tech companies are rethinking their return to work policies as the Delta variant spreads.
Like many companies, Microsoft plans to have a hybrid workforce, with some employees working on-site, and others working remotely, when offices fully reopen, which is tentatively set for September.
“We have already set the policy that up to 50% [of the time], without asking anyone, you can work from home,” Nadella said. “And if you need exceptions to that, you can ask your manager and get approval for that as well. So we have already incorporated quite a bit of flexibility.”
Nadella said he also plans to take advantage of the hybrid work policy.
“I will definitely want to be working remotely, if I can, for 50% of the time and for the other 50%, I will come. But we want to be more driven by essentially what the needs are,” he said.