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Wage Growth at Small Businesses Stays Strong

But satisfaction with compensation has fallen

Asian florist working on her laptop in a flower shop.

The pace of wage increases at small businesses in the U.S. continues to escalate, as August saw average hourly earnings growth hit 5.18 percent, compared with 5.03 percent in July 2022, according to the latest Paychex & IHS Markit Small Business Employment Watch report. At $30.71 per hour, average hourly earnings at small businesses have risen by $1.51 over the last 12 months.

"Wage growth tends to be a compelling sign that inflation is rising. However, rising wages might provide some respite for families facing growing expenses," said Martin Mucci, CEO of Paychex, a payroll and HR services software firm based in Rochester, N.Y.

The report draws from the payroll data of approximately 350,000 Paychex clients with fewer than 50 employees and was a joint project with international analytics firm IHS Markit, a part of S&P Global.

Differences by Region and Industry

Regionally, the August report showed that the South led in small-business hourly earnings growth over the past 12 months, averaging an increase of 5.53 percent. The Northeast was the only region with hourly earnings growth below 5 percent (4.58 percent).

Industry Wages

Other services (except public administration) led in annual hourly earnings growth among industries at 7.48 percent in August. One- and three-month annualized growth rates were higher at 8.07 percent and 7.84 percent, respectively.

In contrast, hourly earnings growth in leisure and hospitality slowed for the seventh straight month to 6.37 percent, though the July to August decrease was not as sharp as in previous months.

Small Businesses Stay the Course

Despite recession concerns amid resilient inflation, the labor market remains tight, causing small businesses in the U.S. to avoid salary reductions and layoffs.

The latest Principal Financial Well-Being Index survey of 500 U.S. business leaders, conducted July 7-20, found that large businesses with 500 to 10,000 employees were more likely than small businesses with less than 500 employees to say they are growing (61 percent of respondents versus 46 percent). However, nearly half (49 percent) of small businesses consider themselves stable, compared with 36 percent of large businesses.

"Small businesses learned a lot from the 2008 recession, and many learned they can make adjustments that will minimize the impact on salaries or staff during future periods of economic stress," said Amy Friedrich, president of U.S. insurance solutions at Principal, a Des Moines, Iowa-based provider of financial benefits.

"Small businesses are dedicated to their employees," Friedrich said. "We saw that during the pandemic, and I think we'll see the same creativity and resiliency if pressures mount in the near term."

Hourly Wages Trail Inflation

According to data released in September by payroll services firm QuickBooks Payroll, employees at 400,000 U.S. small businesses received sizable pay increases over the past 12 months but still lost ground to inflation.

In July 2022, the firm reported, median hourly pay across all of the small businesses in the firm's U.S. sample was $21.51 per hour, an increase of 7.2 percent since July 2021 before inflation. However, with the consumer price index up 8.5 percent over the same 12-month period, "real" (inflation-adjusted) incomes dropped more than 1 percent for small-business employees.

In the U.S., small businesses in the accommodation and food services industry saw the largest pay increases since July 2021, up 11.5 percent to $14.49 per hour.

Satisfaction with Annual Earnings

In other recent research on the economy and compensation, the average "reservation wage"—the lowest wage respondents would be willing to accept for a new job—continued its upward annual trend and reached $72,873 in July 2022, up from $68,954 a year earlier, according to the Federal Reserve Bank of New York's latest SCE Labor Market Survey, released on Aug. 22.

The average full-time annual offer wage received in the past four months increased to $60,764, up from $58,469 in July 2021.

Every four months, approximately 1,000 Survey of Consumer Expectations (SCE) panelists are asked for details about their current or most recent job as part of the ongoing research.

Satisfaction with wage compensation at respondents' current jobs deteriorated, with 56.9 percent of respondents saying they are satisfied with their current wages, down from 58.2 percent a year earlier. 

Meanwhile, satisfaction with nonwage benefits at respondents' current jobs improved to 63.2 percent, up slightly from 62.6 a year earlier.

Related SHRM Articles:

2023 Salary Budgets Projected to Stay at 20-Year High but Trail Inflation, SHRM Online, September 2022

US Employers Boost Pay Budgets Despite Recession Concerns, SHRM Online, August 2022

Related SHRM Resources:

Salary Increase Projections 2023 (and 2022), SHRM Express Request

[Need real-time, HR-reported compensation reports? Check out the SHRM Compensation Data Center]


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