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
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
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
“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
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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