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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.