Fifth District Firms Report on Hiring and Wages

In November 2018, we asked businesses to respond to some survey questions about hiring and wages. This survey included questions that we asked in previous years, which we reported on in a December 2017 post, and a new question about the outlook for 2019. The aim of this survey was to better understand the current and expected hiring environment that businesses are facing and how firms are using wages to retain and attract workers.

Out of 186 Fifth District firms that responded to the survey, 42.5 percent planned to increase employment over the next twelve months. Meanwhile, half said that they did not plan to change their level of employment and 7.5 percent planned to reduce their workforce in the next year. Compared to previous survey results, the share of firms that planned to increase employment was smaller this year than last year, but was still larger than the shares reported in 2015 and 2016. (See chart below.)

Businesses that intended to hire more workers over the next twelve months were asked about the key factors behind their plans. The most common answers selected were that they expected high sales growth and an improved financial position and that the current staff were either overworked or didn’t possess the necessary skills. Additionally, a few firms commented that they needed to hire to replace employees that retired or resigned.

Firms were also asked about the top factors that were holding them back from hiring. Here, the most selected factor was that they could not find workers with the necessary skills, followed by a desire to keep operating costs low. Several firms also indicated that candidates rejected their job offers while some business noted that applicants either failed or refused drug testing.

When asked about how they were dealing with the challenge of finding qualified workers, many businesses said that they had raised starting wages or offered signing bonuses to attract new hires and also increased advertising of open positions. In addition, 55 firms indicated that they focused on retaining and promoting existing employees to reduce the need for new hires. This response was the third most selected in November 2018, but was the most selected answer in 2017. (See chart below.)

The chart above also shows that several firms dealt with the challenge by hiring temporary employees and/or candidates with lower qualifications and training them. Compared to the same survey conducted last November, a larger number of firms relied on temps than hiring under-skilled workers this year. Meanwhile, about the same number said they invested in technology to reduce the need for new hires.

Among firms looking to hire, more than 78 percent said they were raising starting wages to some degree. About 51 percent said they were raising wages for only selected job categories while just over 27 percent were raising wages for most job categories. And in terms of the wages being offered to current employees, firms were asked how wage increases compared to historical averages. About one-third of firms said they were offering larger-than-usual increases to most positions, another third had larger-than-usual wage increases for only some positions. The rest were not raising wages by more than they have in the past.

Lastly, firms were asked if the difficulty finding workers was reducing their expectations for growth in 2019. In response to this question, almost half of surveyed business said that they were not reducing their forecasted growth. Meanwhile, 28.4 percent said that labor constraints were slightly reducing their expected growth, 16.4 percent said expected growth was reduced moderately, and 5.5 percent said expected growth was reduced considerably due to labor constraints.

In sum, according to Fifth District firms’ responses to the recent survey, many businesses intended to increase employment in the next twelve months and were using higher wages to attract candidates. Meanwhile, although a majority of business have been challenged by trying to attract and retain workers with the necessary skills, only about half of firms anticipated this being an impediment to growth in 2019.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.