SMB employment grew by 0.5% in February 2023, according to platform data from the 200,000+ businesses using Gusto. While still signaling growth, this figure is below the 1.8% increase in February of 2022 and the 1.4% growth in 2021. The cooldown can also be seen in wage growth, with average hourly pay increasing by 3.3% in February, down from the 3.6% growth in January and the lowest rate in 17 months.
The deceleration in pay is concentrated mainly among new hires, with Gusto’s New Hire wage Index showing that employers are now paying 3.5% lower wages for an employee hired in the last month than in February 2022. This data indicates that as hiring ticks down, SMB owners remain focused on retaining their current staff through pay increases rather than adding new hires.
All industries are not faring equally, however: after getting hit the hardest during the pandemic, firms in Personal Services (such as Tourism and Arts & Entertainment) are seeing among the fastest rate of jobs growth currently – and the highest wage gains as well. Whether strong consumer demand can continue to power those sectors will determine the economic path over the next several months.
Jobs Growth is Strongest in Personal Services
Across all sectors, SMB employment increased 0.5% in February 2023, down from the 1.2% increase in February 2022. This recent data continues the slowdown in employment growth seen in the second half of 2023. Within sectors, SMBs in several sectors hardest-hit by the pandemic are growing the fastest right now: among the top-growing sectors are Sports & Recreation (+1.9%), Tourism (1.2%), Arts & Entertainment (+0.9%), and Salon & Spa (0.9%). These sectors have been driven by continued strong consumer demand for activities like travel and events at the start of 2023.
Wage Growth Continues to Cool Down
Average pay among all workers grew by 3.3% year over year, the slowest growth rate in 17 months, since September 2021, a sign that the competition for workers seen during the post-pandemic recovery is beginning to soften. This does not mean that the staffing shortage has disappeared, however. The 3.3% increase in wages is still higher than pay growth seen before the pandemic: in 2019, for instance, annual wage growth averaged 1.3% percent.
Further, as employment growth remains strong in Personal Services sectors, workers in those sectors are continuing to see robust wage growth: pay growth has been fastest in sectors such as Tourism (+17.8%), Food & Beverage (+8.4%), and Salon & Spa (+7.9%).
Companies are Paying Less For New Hires Than a Year Ago
As the economy recovered post-pandemic and businesses expanded, they competed to recruit new workers by paying higher and higher wages, but Gusto’s New Hires Wage Index indicates that amid the economic cooldown, employers are no longer paying more to hire new employees. Even as wages increased 3.3% over the past year, workers hired in February are paid an average of 3.9% less than workers hired in February 2022. This decrease can partly be attributed to hiring now being concentrated in lower-wage industries, but the drop is also a sign that as hiring is slowing down, businesses are concentrated on retaining existing staff – and are concentrated on raising their pay rather than competing for new hires.
