The NFIB Small Business Universe: America's Employment Engine
Small businesses represent the backbone of American employment, accounting for 47% of total private sector jobs and 64% of net new job creation over the past decade. The National Federation of Independent Business (NFIB) provides the most comprehensive and longest-running survey of small business labor market conditions, offering insights that complement but often diverge from large employer trends captured in official employment reports and broader job posting data while providing critical context for labor market tightness analysis and distributional wage growth patterns alongside job switching compensation dynamics.
The July 2025 NFIB Small Business Jobs Report reveals a sector under persistent pressure from tight labor markets characterized by sustained job openings, though showing signs of adaptation through technology adoption, creative compensation strategies that reflect wage growth pressures, and evolving business models. With 42% of small businesses reporting "jobs hard to fill," the sector continues to operate in territory that would have been considered crisis-level just a decade ago, yet has now become the challenging new normal that contrasts sharply with larger employers' recruiting advantages while highlighting competitive pressures for warehouse and retail talent and staffing industry capacity constraints that affect seasonal hospitality employment strategies.
Small business hiring challenges reflect both the sector's unique characteristics and broader economic trends. Unlike large corporations with dedicated human resources departments, sophisticated recruiting systems, and premium benefits packages, small businesses often compete for talent with limited resources and informal hiring processes. The persistence of hiring difficulties at 42% of businesses, while down from the 47% peak, suggests structural changes in labor market dynamics rather than merely cyclical tightness, creating conditions that parallel challenges faced by smaller retailers competing for warehouse talent and align with broader workforce adjustment patterns while reflecting professional mobility trends that favor larger employers with comprehensive remote work policies.
The demographic profile of small business ownership adds complexity to hiring challenges. With 68% of small business owners over age 50 and 31% over 60, many bring perspectives and expectations formed in different labor market environments. This generational divide between business owners and younger workers seeking employment creates potential mismatches in workplace culture, communication styles, and employment expectations that extend beyond simple compensation and benefits considerations while intersecting with gig economy employment preferences and technology skills training needs that younger workers prioritize alongside changing attitudes toward workplace organization.
Geographic distribution of small businesses also affects hiring dynamics, with rural and small metropolitan areas hosting disproportionate shares of small employers. These locations often lack the population density and infrastructure that facilitate labor market matching, creating persistent recruitment challenges even during periods of higher unemployment, patterns that align with emerging technology center development and domestic manufacturing workforce needs while highlighting agricultural technology labor requirements and infrastructure project staffing challenges.
Industry Breakdown: Construction and Manufacturing Lead Hiring Struggles
The industry distribution of small business hiring difficulties reveals the specific sectors where labor market tightness has created the most acute challenges. Construction leads all industries with 67% of small businesses reporting hard-to-fill positions, a level that has persisted above 60% for 18 consecutive months despite various economic headwinds and policy interventions, challenges that align with skilled trades apprenticeship expansion needs and renewable energy construction workforce demands while reflecting broader supply chain labor constraints and electric vehicle infrastructure development requirements.
Construction small businesses face multiple converging challenges in talent acquisition. The physical demands of construction work limit the potential candidate pool, while the industry's historical reputation for job insecurity and variable working conditions affects worker interest. Additionally, the aging of the skilled trades workforce—with 41% of construction workers over age 45—has created gaps that new entrants struggle to fill despite attractive wage premiums, dynamics that support educational institution workforce programs and alternative career pathway development while driving international skilled worker recruitment and workforce development service integration.
The infrastructure investment programs of recent years have exacerbated construction labor shortages by increasing demand without correspondingly expanding workforce capacity. Small construction businesses compete not only with each other but also with large contractors working on major infrastructure projects who can offer premium wages, comprehensive benefits, and greater job security, pressures that intersect with major employer competitive hiring strategies and financial sector talent competition while creating opportunities for AI-powered recruiting solutions and optimized application and hiring processes.
Within construction, specialized trades face particularly acute shortages. Electricians, plumbers, and HVAC technicians are reported as hard to fill by 78%, 74%, and 71% of relevant small businesses respectively. These skilled positions require substantial training investments and often licensing requirements that create barriers to entry while generating significant demand from both new construction and retrofit projects, challenges that benefit from specialized technical training approaches and cross-sector skills development strategies while supporting automation and labor balance optimization and supply chain workforce diversification.
Manufacturing ranks second at 54% of small businesses reporting hiring difficulties, reflecting both the sector's evolution toward more skilled positions and its competition with larger manufacturers for technical talent. Small manufacturing businesses often specialize in custom work, prototyping, or niche markets that require versatile workers capable of handling diverse tasks, challenges that align with professional mobility patterns and specialized service sector workforce needs while reflecting emerging technology skill requirements and AI governance and ethics staffing needs that cross traditional industry boundaries and support customer service technology integration.
The manufacturing hiring challenges reflect changing skill requirements as automation and digital technologies transform production processes. Small manufacturers need workers comfortable with computerized equipment, quality control systems, and flexible production methods, skills that may not align with traditional manufacturing worker profiles.
Additionally, small manufacturers often cannot match the compensation and benefits packages offered by large industrial employers, creating competitive disadvantages in recruiting experienced workers. Many rely on hiring entry-level workers and providing on-the-job training, a strategy that requires significant time and resource investments.
Professional services small businesses report 46% hiring difficulties, reflecting competition for skilled workers in accounting, legal, consulting, and technical services. These businesses often seek workers with specific credentials or experience but lack the resources for extensive recruiting or training programs.
Retail small businesses show 39% hiring difficulties, concentrated in customer service, sales, and seasonal positions. While these roles may seem more accessible, retail employers report challenges with work schedule flexibility expectations, compensation demands, and career advancement opportunities that exceed what small retailers can typically provide.
Healthcare small businesses, primarily physician practices, dental offices, and outpatient facilities, report 51% hiring difficulties. These employers compete with hospitals and health systems for clinical staff while facing regulatory requirements and insurance constraints that limit compensation flexibility.
Geographic Disparities: Rural vs. Urban Hiring Challenges
The geographic breakdown of small business hiring difficulties reveals stark disparities between rural and urban areas that reflect different labor market dynamics, demographic trends, and economic structures. Rural small businesses report hiring difficulties at 51% compared to 38% for their urban counterparts, a 13 percentage point gap that has widened over the past two years.
Rural hiring challenges stem from fundamental demographic and economic factors. Many rural areas have experienced population decline, particularly among younger adults who migrate to metropolitan areas for education and career opportunities. This out-migration leaves rural communities with aging populations and limited labor force growth, creating structural constraints on business expansion.
The rural small business hiring difficulties are compounded by limited transportation infrastructure and housing availability that constrains worker mobility. Unlike urban areas where workers can commute from multiple neighboring communities, rural businesses often depend on local labor pools that may be insufficient for their needs.
Educational and training infrastructure in rural areas often lags urban alternatives, limiting the development of skilled workers in technical trades and professional services. Rural community colleges and training programs, while often high-quality, may lack the scale and specialization needed to serve diverse small business needs.
However, rural small businesses also enjoy certain advantages that urban counterparts may lack. Lower commercial real estate costs, reduced regulatory complexity, and stronger community relationships can provide competitive advantages in attracting and retaining workers who value these factors.
Regional patterns within rural areas show significant variation, with rural businesses in the Mountain West and Southeast reporting somewhat lower hiring difficulties (47% and 48% respectively) compared to rural Midwest (54%) and Northeast (56%) businesses. These differences reflect varying economic growth patterns, demographic trends, and industry compositions across rural regions.
Urban small businesses, while reporting lower overall hiring difficulties at 38%, face different challenges including higher wage competition, complex regulations, and elevated operating costs that constrain their ability to compete with large employers for talent. Urban businesses also encounter more demanding worker expectations regarding benefits, workplace culture, and career advancement opportunities.
Suburban small businesses occupy a middle position with 43% reporting hiring difficulties, reflecting hybrid characteristics that combine urban wage competition with more limited labor pools than dense metropolitan cores.
The COVID-19 pandemic has partially disrupted traditional urban-rural labor market patterns, with remote work enabling some rural residents to access urban job opportunities while residing in lower-cost areas. This trend has created both opportunities and challenges for rural small businesses, providing access to skilled workers while also creating competition from distant employers.
Compensation Strategy Evolution: Small Business Response to Labor Scarcity
The most striking development in small business labor strategies has been the dramatic increase in planned compensation adjustments, with 28% of small businesses planning to increase wages and benefits in the coming months—the highest level since NFIB began tracking this metric in 1986. This represents a fundamental shift from historical patterns where small businesses typically waited for economic conditions to force compensation adjustments.
The average small business wage increase budget has risen to 4.8% for 2025, compared to 3.1% in July 2024 and just 2.7% in 2022. This acceleration reflects both inflation pressures and competitive necessity as small businesses recognize that maintaining below-market compensation leads to staffing shortages that constrain business operations and growth.
Service sector small businesses lead compensation planning, with 31% reporting intended increases compared to 22% of goods-producing businesses. This pattern likely reflects both higher turnover rates in service industries and greater flexibility in pricing services to cover increased labor costs.
Within the service sector, restaurants and hospitality businesses show the highest compensation planning rates at 38%, driven by persistent staffing shortages and competitive pressure from other service employers. Professional services follow at 33%, while retail businesses plan increases at 29% rates.
Manufacturing small businesses, while showing lower compensation planning rates at 22%, often implement larger average increases when they do adjust wages. The average manufacturing small business increase budget of 5.2% exceeds service sector averages of 4.6%, reflecting the higher skill requirements and replacement costs for manufacturing workers.
Construction small businesses show compensation planning rates of 26% with average increases of 5.4%, among the highest across industries. This reflects both acute labor shortages and the project-based nature of construction work that allows cost adjustments to be passed through to customers more readily than in other sectors.
Geographic variation in compensation planning shows urban small businesses at 31% compared to rural businesses at 24%, likely reflecting both higher wage competition in metropolitan areas and greater revenue constraints facing rural businesses. However, rural businesses that do plan increases average 5.1% compared to 4.6% for urban businesses, suggesting larger adjustments when market pressures become irresistible.
The compensation increases extend beyond base wages to include creative benefit enhancements that small businesses can implement without major administrative burden. Flexible scheduling, additional paid time off, and performance bonuses have become more common as small businesses seek low-cost ways to enhance total compensation packages.
Innovation and Adaptation: Technology Adoption and Productivity Solutions
Faced with persistent hiring difficulties, small businesses have dramatically accelerated technology adoption as a means of maintaining productivity with constrained workforces. The July 2025 data shows 67% of small businesses have implemented new technologies within the past year, compared to 34% in 2022 and just 19% in 2019.
Point-of-sale and inventory management systems lead small business technology adoption at 78% of retail and restaurant businesses, enabling more efficient operations with fewer staff members. These systems provide real-time inventory tracking, automated reordering, and sales analytics that previously required dedicated personnel to manage.
Customer relationship management (CRM) systems have been adopted by 45% of service-oriented small businesses, allowing more systematic management of client relationships and service delivery without expanding administrative staff. Cloud-based CRM solutions particularly appeal to small businesses due to low upfront costs and minimal IT support requirements.
Automated scheduling and payroll systems have been implemented by 52% of small businesses, reducing administrative burden while improving schedule optimization and compliance management. These systems help small businesses manage complex labor regulations and worker scheduling preferences more efficiently.
Digital marketing and e-commerce platforms have been adopted by 41% of small businesses, enabling expanded market reach without proportional increases in sales staff. Social media management tools, email marketing systems, and online ordering platforms allow small businesses to serve larger customer bases with existing personnel.
Financial management and accounting software usage has reached 69% of small businesses, reducing bookkeeping and administrative requirements while improving financial visibility and decision-making. Cloud-based accounting systems particularly benefit small businesses by providing professional-grade capabilities without dedicated IT infrastructure.
Industry-specific technology adoption varies significantly, with retail and restaurant businesses leading at 74% adoption rates, followed by professional services at 68%, manufacturing at 59%, and construction at 51%. The variation reflects both industry-specific technology availability and different labor substitution opportunities.
The productivity impact of technology adoption has been substantial, with businesses implementing new systems reporting 12% average improvements in worker productivity and 8% reductions in administrative time requirements. These productivity gains help small businesses maintain service levels despite hiring difficulties.
However, technology adoption also creates new challenges for small businesses, including training requirements, system integration complexity, and ongoing subscription costs. Businesses report spending an average of $3,200 annually on new technology systems, representing 2.1% of average small business revenues.
Retention Strategies: Beyond Traditional Benefits
Small businesses have evolved sophisticated retention strategies that leverage their unique advantages while addressing worker preferences shaped by tight labor markets. Employee retention bonuses, used by just 12% of small businesses pre-pandemic, are now implemented by 34% of businesses facing acute hiring challenges.
These retention bonuses typically range from $500-2,500 depending on position level and local market conditions, with payments structured to reward tenure milestones such as six months, one year, and two years of service. Construction and healthcare small businesses show the highest retention bonus usage at 47% and 41% respectively.
Flexible scheduling has become a cornerstone of small business retention strategy, with 58% offering non-traditional work arrangements compared to 23% in 2019. This flexibility includes compressed work weeks, flexible start times, and job sharing arrangements that large employers may struggle to implement due to operational complexity.
Professional development support has expanded among small businesses, with 31% providing training stipends, conference attendance, or continuing education support. While these programs may be modest compared to large corporate offerings, they often provide more personalized development opportunities and direct access to business owners and senior staff.
Profit-sharing and performance bonuses have been adopted by 29% of small businesses as retention tools, providing workers with direct participation in business success. These arrangements often create stronger alignment between worker and business owner interests than traditional corporate incentive programs.
Remote work options have stabilized at 23% of small businesses, concentrated in professional services (67%), information technology (78%), and administrative functions (34%). While many small businesses initially resisted remote work due to oversight concerns, successful implementation has provided competitive advantages in recruiting and retention.
Informal benefits and workplace culture enhancements have become important retention tools for small businesses. These include casual dress codes, pet-friendly workplaces, flexible break policies, and family event inclusion that create personal connections difficult to replicate in large corporate environments.
Healthcare and insurance benefits remain challenging for small businesses due to cost and administrative complexity. However, 41% have joined association health plans or purchasing cooperatives to provide better benefits at lower costs, while 26% have implemented health savings accounts to provide tax-advantaged healthcare benefits.
The Personal Touch Advantage
Small businesses increasingly leverage their ability to provide personalized attention and direct communication as retention advantages. Workers report higher job satisfaction when they can interact directly with business owners and see the immediate impact of their contributions to business success.
Career pathway clarity, while limited in small organizations, can be enhanced through cross-training opportunities and increasing responsibility that may advance more quickly than in large bureaucratic structures. Many small business workers value the variety and autonomy that come with working in smaller organizations.
Recognition programs in small businesses often have more immediate impact due to direct relationships between owners and employees. Public recognition, milestone celebrations, and personal acknowledgment of achievements create workplace cultures that can compete effectively with larger employers' formal recognition systems.
Seasonal Employment Challenges: The Retail Struggle
Small retailers face particularly acute challenges with seasonal employment, with 73% reporting difficulties in summer 2025 staffing compared to 45% experiencing similar challenges in 2022. This dramatic increase reflects both tightening labor markets and changing worker expectations about temporary employment.
Traditional seasonal employment patterns have been disrupted by several factors. Year-round employment opportunities in service industries have reduced the pool of workers seeking temporary positions. Additionally, younger workers who traditionally filled seasonal roles increasingly seek positions with career development potential rather than short-term income.
The gig economy has created alternative income opportunities that may be more attractive than traditional seasonal retail work. Food delivery, rideshare driving, and online freelancing often provide greater schedule flexibility and comparable or higher earnings than seasonal retail positions.
Small retailers have adapted by offering higher wages for seasonal positions, with average temporary wages increasing 23% compared to 2022 levels. However, this creates pressure on profit margins during peak sales periods when labor costs represent a larger portion of expenses.
Some small retailers have shifted toward year-round employment models with seasonal hour variations rather than temporary hiring. This approach improves retention and reduces recruiting costs while providing workers with employment security that may be more attractive than traditional seasonal arrangements.
Creative scheduling solutions have been implemented by 47% of small retailers, including peak-hour staffing, shared positions across multiple businesses, and flexible arrangements that accommodate workers' other commitments. These approaches help address staffing needs while recognizing changed worker preferences.
Technology solutions have partially addressed seasonal staffing challenges, with mobile point-of-sale systems, self-checkout options, and inventory management tools reducing peak-period labor requirements. However, customer service and sales functions remain difficult to automate in small retail environments.
Financial Constraints and Business Model Adaptation
Despite recognition of labor market realities, small businesses face significant financial constraints that limit their ability to compete with larger employers on pure compensation terms. The average small business operates on net profit margins of 7-10%, providing limited flexibility for dramatic wage increases without corresponding revenue growth or operational changes.
Access to capital for wage increases remains challenging for many small businesses, particularly those without strong banking relationships or sufficient collateral for traditional lending. While various government programs have provided support, many small businesses report difficulty navigating application processes or meeting eligibility requirements.
Cash flow management becomes more complex when businesses increase compensation without immediate revenue increases. Many small businesses operate with limited financial reserves, making it difficult to absorb higher labor costs during slow periods or economic uncertainty.
Price adjustments to cover increased labor costs may not be feasible in competitive markets where customers can easily choose alternatives. Small businesses often lack pricing power compared to larger competitors with economies of scale and brand recognition.
Business model innovation has become necessary for many small businesses to address labor constraints while maintaining profitability. This includes service automation, product mix changes toward higher-margin offerings, and operational restructuring to reduce labor intensity.
Some small businesses have successfully repositioned toward premium market segments where higher prices can support increased labor costs. This strategy requires significant investment in quality, service, and branding but can provide sustainable competitive advantages.
Strategic partnerships and cooperation among small businesses have provided alternative approaches to labor challenges. Shared staffing arrangements, joint training programs, and cooperative purchasing agreements help small businesses achieve some scale advantages while maintaining independence.
Policy Implications and Support Needs
The persistent hiring challenges faced by small businesses have significant policy implications for economic growth, innovation, and employment distribution. Small businesses' role as employment creators and innovation sources makes their health crucial for broader economic dynamism.
Immigration policy affects small business labor availability, particularly in construction, agriculture, and service industries where immigrant workers have traditionally provided significant portions of the workforce. Changes in immigration enforcement or visa availability can dramatically affect small business operations.
Educational and workforce development policies could better address small business needs through programs that provide practical skills training, apprenticeship opportunities, and career pathways that connect with small business employment opportunities.
Healthcare policy significantly affects small business competitiveness, as the cost and complexity of providing health benefits creates substantial competitive disadvantages compared to large employers with economies of scale and dedicated benefit administration.
Regulatory compliance costs disproportionately affect small businesses that lack dedicated legal and administrative staff. Streamlined compliance processes, safe harbors for small businesses, and technical assistance programs could reduce operational burden and free resources for compensation and growth.
Access to capital policies, including lending programs, tax incentives, and grant opportunities, could provide small businesses with resources needed to invest in compensation, technology, and workforce development.
Local economic development policies could better support small business clusters, shared services, and cooperative arrangements that help smaller employers compete more effectively for talent while maintaining operational efficiency.
Tax policy affects small business cash flow and investment capacity through both direct taxation and administrative compliance requirements. Simplified tax structures and targeted incentives could provide resources for small businesses to invest in workforce development and retention.
Competitive Dynamics: Small vs. Large Employer Strategies
The labor market competition between small and large employers has intensified as both groups compete for similar talent pools while offering different value propositions. Understanding these competitive dynamics provides insights for both business strategy and policy development.
Large employers typically maintain advantages in compensation, benefits, and career advancement opportunities that can be difficult for small businesses to match directly. However, small businesses offer advantages in workplace culture, job variety, direct access to decision makers, and flexibility that appeal to many workers.
Remote work has complicated competitive dynamics by expanding the geographic scope of competition while potentially favoring employers who can offer location flexibility. Some small businesses have gained competitive advantages by offering remote work options that larger employers may resist due to management complexity.
Brand recognition and recruitment infrastructure favor large employers who can invest in sophisticated hiring systems, employer branding, and national recruiting campaigns. Small businesses must compete through personal relationships, community connections, and word-of-mouth reputation.
Training and development capabilities generally favor large employers with formal programs and career pathways. However, small businesses can offer hands-on learning opportunities and cross-functional experience that may be more immediately applicable and engaging.
Job security perceptions traditionally favored large employers, though recent corporate restructuring and layoffs have somewhat reduced this advantage. Small businesses can emphasize their stability and commitment to long-term employment relationships.
Innovation and entrepreneurial opportunity may favor small businesses where workers can have greater impact on business direction and potentially participate in business growth through equity or profit-sharing arrangements.
Future Outlook: Adaptation and Evolution
The persistent nature of small business hiring challenges suggests that current conditions may represent a new operating environment rather than a temporary phenomenon. Successful small businesses will need continued adaptation and innovation to thrive in these conditions.
Technology adoption will likely continue accelerating as small businesses seek productivity improvements and operational efficiency gains. Artificial intelligence tools specifically designed for small business applications may provide new opportunities for automation and decision support.
Business model evolution toward service differentiation, premium positioning, and value-added offerings may help small businesses justify higher prices needed to support competitive compensation levels.
Cooperative arrangements among small businesses may expand to provide scale advantages in benefits administration, training programs, and shared staffing arrangements while maintaining individual business independence.
Generational transition in small business ownership may bring new approaches to management, technology adoption, and worker engagement as younger entrepreneurs implement practices shaped by contemporary workplace expectations.
Geographic distribution of small businesses may shift toward regions with better labor availability, favorable business climates, and lower operating costs, though this trend must be balanced against market access and customer location requirements.
Policy support for small businesses may evolve to address current labor market realities through targeted programs for workforce development, healthcare benefits, and competitive positioning relative to large employers.
Small Business Resilience in Tight Labor Markets
The July 2025 NFIB Small Business Jobs Report portrays a sector that continues to face unprecedented labor market challenges while demonstrating remarkable resilience and adaptability. With 42% of small businesses reporting hard-to-fill positions and 28% planning compensation increases, the small business community operates in territory that previous generations would have considered unsustainable.
Yet small businesses continue to adapt, innovate, and compete for talent through creative strategies that leverage their unique advantages while addressing contemporary worker expectations. Technology adoption rates of 67%, retention bonus usage by 34% of businesses, and remote work offerings by 23% of companies represent fundamental changes in small business operations that seemed unlikely just five years ago.
For small business owners, the data provides both validation of their experiences and guidance for strategic adaptation. The 4.8% average wage increase budget and widespread adoption of flexible benefits and working arrangements suggest competitive benchmarks for businesses seeking to attract and retain talent.
For workers, the small business sector offers substantial opportunities in tight labor markets, with particular advantages in construction, manufacturing, and rural markets where hiring difficulties create negotiating leverage and career advancement opportunities.
For policymakers, the data highlights the importance of small business health for employment creation and economic dynamism. The sector's struggles with healthcare costs, regulatory compliance, and capital access create opportunities for targeted interventions that could enhance competitiveness and growth potential.
The geographic disparities revealed in the data, with rural businesses facing greater challenges than urban counterparts, suggest needs for place-based policies that address infrastructure, workforce development, and business support specific to different community types.
Looking ahead, the small business sector's continued adaptation to labor market realities will likely drive innovation in business models, employment practices, and community economic development. The businesses that successfully navigate current challenges while maintaining focus on customer service and operational excellence will be positioned for sustained success in the evolving economy.
The NFIB data ultimately reinforces the conclusion that small businesses remain a vital component of American employment and innovation, capable of adaptation and growth even under challenging conditions. Their success in addressing current labor market challenges will significantly influence broader economic outcomes and community prosperity in the years ahead.