How Do Firms Respond to Hiring Difficulties? Evidence from the Federal Reserve Banks' Small Business Credit Survey

14 Pages Posted: 22 Aug 2018 Last revised: 21 Feb 2019

See all articles by Mels De Zeeuw

Mels De Zeeuw

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Ellie Terry

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: 2018-08-21

Abstract

Using data from the Federal Reserve Banks' 2017 Small Business Credit Survey (SBCS), this paper investigates the various ways in which different types of firms with less than 500 employees experience and address hiring difficulties, including when they decide to increase compensation. {{p}} The authors find significant variation in hiring difficulties by type of firm, and a firm's response appears to depend on the nature of the problem. The most common response is to increase compensation, with firms that experience competition from other employers being the most likely to do so. Other common responses were to engage in nonproduction activities—like training and job restructuring—that may boost longer-run productivity. {{p}} The results provide insight for policymakers trying to understand the linkage between compensation, labor market tightness, and productivity. Further, the variation in hiring difficulties across firm industry, education requirement, and geographic location informs economic and workforce development practitioners and policymakers working to develop targeted interventions.

Keywords: small business, labor market, hiring difficulty, wages

JEL Classification: J01, J23, J24, J31, J32

Suggested Citation

De Zeeuw, Mels and Terry, Ellie, How Do Firms Respond to Hiring Difficulties? Evidence from the Federal Reserve Banks' Small Business Credit Survey (2018-08-21). FRB Atlanta Community and Economic Development Discussion Paper No. 2018-1. Available at SSRN: https://ssrn.com/abstract=3236583 or http://dx.doi.org/10.29338/dp2018-01

Mels De Zeeuw (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Ellie Terry

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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