New Study on Small Businesses: Wage Growth Declining, Hours Worked Increasing

A recent study by Paychex sought to explore trends in wage growth and hours worked among small businesses. That report shows that small business wage growth has decreased, despite an increase in weekly hours worked.

Down 0.12% in August to 99.22, the Small Business Jobs Index has fallen for three consecutive months and is 0.73% lower than a year ago. The rate of hourly earnings growth in August stands at 2.21%. Despite the hiring slowdown, the number of weekly hours worked has been increasing for the past 21 months (up 0.52% YOY), helping weekly earnings growth (up 2.74% YOY).

“Small businesses continue to reduce hiring in this tight workforce competition. At 99.22, August marked the sixth decline of 2018, bringing the Small Business Jobs Index to its lowest level since 2010,” said James Diffley, chief regional economist at IHS Markit.

“As the rate of job growth continues to slow at small businesses, existing employees are making up for the lack of new hires by working more hours each week, helping to bolster weekly earnings growth,” said Martin Mucci, Paychex president and CEO.

Broken down further by geography and industry, the report showed:

• The top regions for employment growth and wage growth, respectively, are the South and West.
• Wisconsin ranks highest among states for jobs growth; Arizona ranks first in wage growth.
• Denver ranks first among metros in jobs growth; Riverside, CA, took the lead in wage growth.
• Among industries, Leisure and Hospitality ranks first in wage growth.

The complete results for August, including interactive charts detailing all data at a national, regional, state, metro, and industry level, are available at www.paychex.com/employment-watch. Highlights are available below.

National Jobs Index

• Small business job growth has steadily declined; the national index is down 0.73% year-over-year, compounding a similar decline of 0.74% in the prior year.
• Slowing for the third consecutive month, the national index is down 0.38% during the past three months.

National Wage Report

• Weekly hours worked continue to increase and have been accelerating since March. Possibly associated with the slowdown in small business job growth, current employees are working more hours as the year-over-year growth rate has been positive for the past 21 months.
• Earnings growth rates have decelerated for a full year now, with the hourly earnings rate now at 2.21%. One-month and three-month annualized growth rates were both below two percent in August.

Regional Jobs Index

• Despite the weakest 12-month growth rate, the South remained the top-ranked region for small business job growth for the 28th consecutive month, with an index level of 99.80.
• While all other regions declined, the West remained flat at 99.32.

Regional Wage Report  

• At $27.97 and up 3.03% year-over-year, hourly earnings are highest and growing the fastest in the West, a full percentage point faster than the other regions.
• With positive hours worked growth in all regions, weekly earnings growth is well above hourly earnings growth.

State Jobs Index

• Wisconsin, Arizona, and Georgia led the states in small business job growth in August.
• Seven states, including New York, Illinois, Ohio, and California have an index level below 99.

Note: Analysis is provided for the 20 largest states based on U.S. population.

State Wage Report

• Arizona and Tennessee had weekly earnings growth greater than four percent in August.
• Eleven states had hourly earnings growth below two percent in August.
• Trailing other states, Virginia reported less than one percent growth in both hourly and weekly earnings in August.
• Growth in hours worked is positive in all but one state, Washington.

Note: Analysis is provided for the 20 largest states based on U.S. population.

Metropolitan Jobs Index  

• Following four months of consecutive slowdowns, Denver regained the top spot among metros, gaining 0.46% in August and reaching an index of 101.21.
• At 97.80, Los Angeles remained the lowest-ranked metro for the seventh straight month, maintaining a negative year-over-year growth rate in every month since the start of 2017.

Note: Analysis is provided for the 20 largest metro areas based on U.S. population.

Metropolitan Wage Report

• Southwestern metros Riverside and Phoenix are well ahead in hourly earnings growth. At 4.48% in August, Riverside overtook Phoenix for the top-ranked metro with its fourth straight increase.
• Just above one percent in August, hourly earnings growth has slowed considerably in Houston, though weekly earnings growth is near two percent as employees are working more hours compared to last year.

Note: Analysis is provided for the 20 largest metro areas based on U.S. population.

Industry Jobs Index

• Increasing slightly at 0.04%, Professional and Business Services was the only industry sector to improve the pace of job growth from August 2017.
• Five of the eight reported industry sectors have an index level below 99.
• Construction improved slightly in August, remaining just above 100.

Note: Analysis is provided for seven major industry sectors.

Industry Wage Report  

• With hourly earnings growth of 3.80%, Leisure and Hospitality continued to lead, with Construction a distant second at 2.99%.
• Increasing to 3.67%, weekly earnings growth in the Construction sector is strengthening with consistent gains in hours worked over the past year.

Note: Analysis is provided for seven major industry sectors.