Calif. Labor Market, Demand for Healthcare Impact Small Businesses 
:  Published March 2007 All Rights Reserved


Calif. Labor Market, Demand for Healthcare Impact Small Businesses

Small businesses in the state of California cannot find enough skilled workers, but those businesses also do not offer benefits, this according to the latest small business survey by Union Bank of California.

According to Union Bank's senior economist Keitaro Matsuda, when the labor market is tight, employers start to offer more generous compensation packages. Even though less than half (47.7 percent) of the survey respondents offered healthcare coverage.

The San Francisco-based Union Bank concluded that small business owners expect higher profits in 2007.

Some 67 percent of survey respondents expected higher profits in 2007 and 63 percent said sales had increased in 2006 from 2005. The employment outlook placed 30 percent of small business owners on a hiring binge, 66 percent planned to maintain current levels of staff, and 4 percent expected to reduce the workforce.

“Given the optimism expressed by respondents, I am a little surprised that more businesses are not planning to add employees,” said Matsuda. “The extremely tight labor market and rising wages are perhaps making small businesses rely more on technology for productivity gains.” In fact, approximately 35 percent intend to invest in equipment or building improvements, he said.

Union Bank considers surveys of small business owners to be an excellent assessment of the overall business climate in California, because small business is a powerful driver in the economy, said Union Bank's COO Philip Flynn. “The continued optimism of small business owners has been reflected in the growth of the state, yet we see that this positive outlook is tempered by ongoing concerns about the costs of healthcare and workers’ compensation,” Flynn said.

Among small business owner concerns --  workers’ compensation ranks high on the list. For the fourth year running, respondents identified the cost of workers’ compensation insurance as the number one challenge of running a business in California. Forty-three percent cited it as their biggest worry for 2007, down from 51 percent in 2006 and 66 percent in 2005.

Matsuda said the progressive decrease indicated that the workers’ compensation crisis had ended. When asked more specifically about premiums, 20 percent of survey respondents said that their workers’ compensation premiums increased, 20 percent said they decreased, and 60 percent said they stayed the same. In 2005, 46.2 percent of businesses experienced cost increases.

In any given year, some businesses should see their workers’ compensation costs increase for various reasons, such as a change in the number of workers, and some businesses should see cost decreases. “We no longer have a lopsided situation, in which a large percentage of those surveyed witnessed cost increases,” Matsuda concluded. “The state’s workers’ compensation insurance reform seems to have finally reached the smallest members of the business community.”

Following workers’ compensation, small business owners cited the California economy (35 percent,) state and local business taxes (30 percent,) and healthcare costs (29 percent) as the greatest challenges of doing business in the state. As another sign of a tightening labor market, the availability of skilled labor (27 percent) moved up to the fifth position as business owners’ concern from sixth in 2006, and the percentage has steadily risen over the past few years, from 19 percent in 2004.

For the second year in a row, a slight majority (52 percent) of business owners indicated they do not offer healthcare coverage to employees. Santa Clara County bucked the trend, with 63 percent of its small business employers offering healthcare benefits.

For those employers that do offer healthcare benefits, 60 percent reported that rising costs have affected their business. While virtually no employers were forced to drop coverage, they shifted a larger portion of healthcare costs to employees (16 percent,) reduced health benefits (7 percent,) or a combination of the two (24 percent.)

Nevertheless, the percentage of employers that shifted healthcare costs to employees dropped uniformly compared with the 2006 results. Matsuda surmised that the tight labor market might be forcing employers to absorb some of the rising costs of this benefit.

In spite of these pressures, for the fourth year in a row, 30 percent of respondents selected “Opportunities for Growth” as the top advantage for doing business in California. Twenty percent of survey respondents rated family ties as a leading advantage for working in state.


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