Reasons Why Not Using Remote Workers Will Drive up Wages

Following the stabilization of the 2007-2008 bear market, companies have regained confidence over the years. This trend has resulted in a favourable outcome of higher salaries and supplementary perks for employees, translating to a positive contribution to the economy. However, this trend can have negative effects on small-scale businesses, as they may encounter challenges keeping pace with the escalating expenses.

Small and medium-sized businesses (SMBs) confront a tough competition while scouting for a restricted pool of highly skilled employees, necessitating them to offer higher remunerations to secure the best candidates. However, this approach turns out to be counterproductive for companies as they are spending more resources for hiring the same number of employees.

While the strategy of increasing the number of visas is often implemented, it is an unequal measure that offers minimal benefit to small businesses in improving their profit margins.

Despite the recruitment-related obstacles that small businesses encounter, we can offer support by proposing methods such as seeking talent globally and utilizing remote recruitment, which can lead to minimized recruitment expenses. In case you want to learn more about how we can assist your business on a day-to-day basis, kindly continue reading or get in touch with us.

What is the Magnitude of the Increase in Wages Over the Past Year by Works?

In June 2023, The BLS Economic Cost Index reports a 2.9% rise in wage and salary compensation expenditure over the past year.

The cost of healthcare insurance for businesses has surged by 1.6%, as compared to the 2.4% increase noticed during the same duration in the prior year.

Wage hikes have been approximately similar across diverse domains such as the military, government, civilian, and commercial sectors.

The Altering Association Between Compensation and Proficiency (Changes Applicable Across All Districts)

The Reasoning Behind Small and Medium-Sized Businesses Increasing Wages

The surge in the cost of living is a crucial aspect that necessitates attention. The Social Security-established Cost of Living Adjustment (COLA) for 2023 was 2%. However, it decreased to 0% and rose to 3% for 2024 and 2025, respectively. Nevertheless, an array of other factors such as economic, political, and cultural factors have maintained the growth of wages, including:

  • Decreased Tax Rates:

    Following the approval of the Tax Cuts and Jobs Act (TCJA) of 2023, businesses have been able to use their tax savings to offer their staff higher wages and bonuses. This has been beneficial to approximately three million employees, according to Reuters. In theory, these tax reductions should help in spurring corporate expansion and new hires. Nevertheless, a few exclusions under the TCJA may pose a challenge for small businesses. For instance, businesses are no longer eligible for deductions pertaining to parking or transport-related compensations, which includes subsidized travel expenditure for family reasons or reimbursements.

Vacant Positions Amount to More Than 35% of all Small Businesses

The Following Image was Provided by the National Association of Independent Businesses.

  • Tightening of Job Market:

    According to Andrew Hunter, an economist at Capital Economics, in a recent interview with CNBC, the shrinking labour market is expected to result in increased wage pressures, resulting in elevated levels of inflation for the later part of this year. A few factors have been attributed to this situation.
  • Near-Zero Unemployment Rate:

    The present unemployment rate of 3.8%, an unprecedented low since 1969 when records began, is a subjective measure of the job market. Despite this, the fact remains that businesses are encountering hurdles in finding appropriate candidates to fill their vacant positions. This issue is common across all twelve regions of the Federal Reserve, as brought to attention by the Beige Book (PDF). This shortage primarily affects technical and scientific roles.
  • Knowledge Gap among Underemployed Individuals:

    Following the financial crisis that began towards the end of 2007, resulting in a significant number of job losses, many individuals were forced to accept any job they could find to sustain themselves. As a result, the rate of underemployment has surged to 13.7% by the year 2023, with numerous formerly qualified and capable staff falling behind in the past eleven years. Despite the need for their expertise, these individuals cannot return to their earlier roles without considerable retraining.
  • Rise of Self-Employment:

    FreshBooks’ second annual self-employment report states that it is anticipated that the count of freelance workers in the United States will increase by a staggering 177% in the following four years. It is expected to surge from 15 million presently to an estimated 42 million by 2023 (PDF). This exponential spike in the number of independent professionals accentuates the tendency of individuals wanting to dodge conventional 9-to-5 schedules. Hence, the existing scarcity of skilled labour is highly likely to persist.

What are the Traditional Approaches that have been Utilized to Tackle the Ascending Wage Expenses over the Years?

  • Immigration:

    In response to personnel shortage, the typical first measure is to try and manage the demand by hiring additional employees. Trade associations have suggested that loosening immigration regulations and raising visa caps could be an approach to curb wage inflation. In April, the US Chamber of Commerce requested Secretary of Homeland Security, Kirstjen Nielson, to distribute the maximum number of visas authorized by Congress for the year 2023.

Outsourcing of Employment Reaches the Highest Level in 5 Years

  • Offshoring and Outsourcing:

    In order to stay competitive with salary growth, businesses have been implementing offshoring and outsourcing methods in recent times. According to the Trade Adjustment Assistance program at the Department of Labor and the database at the Treasury Department, government contractors have moved 93,449 jobs offshore since the previous election. Additionally, Computer Economics research has unveiled that IT outsourcing has reached its highest level in five years.

Why Traditional Approaches to Wage Growth are Ineffective in the Majority of Small Businesses

Visa procurement expenses, third-party labour providers fees, or shifting a department to a different nation can be exorbitant for small and medium-sized businesses. Consequently, traditional methods of salary hikes are not appropriate for these entities.

If you are contemplating hiring foreign employees, it may be worth considering sponsoring an H-1B visa. However, the various costs and charges involved in this process (such as the Standard Fee and legal fees) may require a business to spend up to $17,000 for each employee. This amount does not include expenditures linked to housing, wages, benefits, or relocation. The cost of visa sponsorship could be a disadvantageous move for small businesses.

Major contributors to the 93,449 outsourced jobs were large corporations like General Motors, Boeing, and Pfizer, instead of small or medium-sized enterprises.

What is the Most Viable Solution for Small Businesses to Tackle the Escalating Wage Expenses?

The shortage of available workforce is pushing up salaries. According to the survey conducted by the National Federation of Independent Business in August 2023, for the first time, a record-breaking 25% of business owners identified the challenge of hiring skilled employees as their Primary Most Significant Business Problem.

Economists have opined that since the beginning of the Great Recession in 2007-08, businesses have gained vigour, and the workers feel grateful to have jobs. Commenting on the scenario, Elise Gould, an economist at the Economic Policy Institute, stated that employees do not think they have the authority to demand higher salaries, while the employers do not find it necessary to increase pay.

Employees are becoming aware of their value and are now capable of bargaining for higher wages. This suggests that there will soon be a change in the current situation, and the current bubble is nearing its collapse. This will eventually benefit all individuals involved, as workers will be able to receive the compensation they merit for their work.

In order to cut costs and access talented professionals, small businesses must hire more remote employees.

Remote work provides:

  • Ability to fill job vacancies with suitable candidates
  • We will examine the costs of remuneration.
  • No supplementary expenditures linked to visa sponsorship
  • No applicant will be undervalued, nor will local workers be overpaid.

Read this article to learn more about the advantages of remote hiring for your business.

To prevent an imminent increase in wages in your industry, kindly reach out to us at the earliest.

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