Union Bank Annual Survey Finds Tightest Labor Market in 30 Years Affecting California Small Businesses' Ability to Hire
March 01 2007 - 2:16PM
Business Wire
In a survey released today by Union Bank of California, most small
business owners anticipate higher profits in 2007 with a positive
outlook for employment. But the bank�s annual Small Business Survey
also found that a majority of respondents face challenges securing
skilled workers in a very tight labor market. In fact, the state�s
annual unemployment ratio was 4.8 percent in 2006, which is the
lowest level since 1976 when the state employment data series was
started. According to Union Bank of California�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 offer healthcare
coverage, a tight labor market seems to be forcing employers to
absorb some of the rising cost of this benefit. The survey also
highlights optimism on the part of California�s small business
owners. Sixty-seven percent of survey respondents expect profits to
be higher in 2007 than in 2006. But 2006 was a good year, as well;
nearly 63 percent of owners reported that 2006 sales were up from
2005. The employment outlook in this sector is also positive � 30
percent of owners anticipate hiring in 2007, 66 percent plan to
maintain current staffing levels, and only four percent expect to
have fewer employees. �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.
�This annual survey has proved to be an excellent tool to assess
the business climate in California, because small business is such
a powerful driver of our economy,� said Union Bank of California�s
Chief Operating Officer, 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.�
Among small business owners� concerns, workers� compensation still
ranks high on the list. In fact, 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 this year, down
from 51 percent in 2006 and 66 percent in 2005. Matsuda says this
progressive decrease indicates that the workers� compensation
crisis is over. 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. Matsuda explained that, 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,� he said. �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
just 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 surmises that the
tight labor market may 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. Survey
Methodology The Union Bank of California annual Small Business
Survey was conducted through individual interviews of nearly 2,000
small business owners from Jan. 9, 2007 to Jan. 24, 2007 throughout
California. For the purposes of the survey, Union Bank defined
small businesses as businesses with annual revenue of $15 million
or below. About Union Bank of California Based in San Francisco,
UnionBanCal Corporation (NYSE:UB) is a bank holding company with
assets of $52.6 billion at December 31, 2006. Its primary
subsidiary, Union Bank of California, N.A., had 321 banking offices
in California, Oregon and Washington, and 2 international offices
at December 31, 2006. The company's Web site is located at
www.unionbank.com.
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