One of the most consistent findings in labor economics has historically been the fact that large companies pay higher wages than small companies — typically by as much as 20-40%. But in my own recent analysis of Homebase hiring data, I’ve found a surprising outcome: Businesses with just one to four employees are willing to pay target hourly wages 10% higher than businesses with 20 to 49 employees — making them worthy hiring competitors in today’s tight labor market.
Source: Homebase hiring data (January 2021 – March 2022). Note: Results from regression predicting Ln (target hourly wage) as a function of total number of employees, state, month, year, month*year, specific business description (e.g., grocery store, pet store, consulting) and select job roles (e.g., chef, baker). Controlling for NAICS codes or coarse business descriptions yield comparable results; controlling for MSA, city or zip code as opposed to state yields consistent results, as does estimating models without controls. Treating business employee size as a continuous variable with a squared-term yields consistent conclusions. Robust, clustered (by establishment) standard error bars. Model F=32.77***, R2 =0.22. All total number of employee indicator variables are statistically significant at p < .05 (two-tailed tests) save for the 100 to 249 indicator variable.
How can the smallest businesses afford to pay more?
It all comes down to productivity advantage. Looking into sales data for a select sample of Homebase customers, for example, I’m finding that businesses with one to four employees earn approximately $4,500 more per month per employee than businesses with 20 to 49 employees. So, on a size-adjusted basis, they’re earning enough revenue per employee to pay a higher wage.
What does this mean for small businesses?
As the labor shortage continues, businesses with one to four employees may find they need to be in a position to compete with larger companies in terms of pay.
And for those who aren’t? There’s plenty more any small business can do to attract — and keep — new job candidates, particularly among the new-era hourly workforce.
In a recent survey of 2,000 hourly workers, Homebase found that today’s hourly employees value good leadership over pay. And that’s not all candidates are looking for in a position.
In order of importance, these are the top 10 factors hourly employees consider in a job offer — proving that being a better boss often pays more than handing out a better paycheck, no matter the size of your business:
- Company leadership
- Pay
- Great co-workers
- Flexible work hours
- A predictable work schedule
- Company culture
- Learning and development opportunities
- Company commitment to sustainability and the environment
- A short commute
- Health insurance
Homebase can help.
A little tech goes a long way with today’s hourly workers.
These are just a few of the ways small businesses can use tools like Homebase to attract — and retain — a great team.
Schedule flexibility and predictability: Homebase gives small business teams peace of mind around schedule predictability and flexibility with an always available digital schedule. Plus, tools that allow them to easily submit their availability and time off, claim open shifts, and swap their shifts with other employees.
Company Culture: Homebase helps small business leaders keep their teams informed and connected with built-in messaging, reminders, and real-time alerts. Plus, businesses can use Homebase to recognize their team’s contributions and build a culture of acknowledgment and appreciation — all while collecting valuable feedback to keep tabs on how their team is feeling after every shift.
Early access to wages: Homebase gives employees early access to up to $250 of their wages with zero interest or fees, making it easy for small businesses to help their employees stay on top of their finances and get ahead, at zero cost to the business or owner.
Interested in more about the state of Main Street and the future of hourly work? Take a look at my latest Main Street Health report.