Photographer: John Taggart/Bloomberg

Corporate America Is Back to Poaching From Smaller Firms

  • Segment lags in job creation as unemployment rate shrinks
  • Mounting labor-market pressures leading to some wage gains

Southeast Sealing Inc. has lost about a third of its nearly 20 workers in the past year, and there’s not much the firm could have done about it.

“One morning they say, ‘I have got another job and won’t be back,’” said Mike Sullivan, 76, owner and chairman of the floor-coating installer based in the Atlanta suburb of Conyers, Georgia. “That happens a lot. They just don’t show up.”

Like manufacturing, small business has near-mythic status in U.S. politics, with presidents since Ronald Reagan hailing the sector as the engine of job creation. In fact, small firms outpaced bigger ones in the rate of payroll growth a few years ago. But with the U.S. labor market nearing or at full employment, it’s Corporate America that’s leading those gains now -- in part by poaching workers.

“Mounting labor shortages make it particularly hard for small companies to hold on to their existing workers, let alone hire new ones,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Wage growth at smaller firms has accelerated, suggestive of smaller firms trying to compete.”

In August, U.S. companies with at least 500 employees added 115,000 jobs, or more than double the 48,000 added by firms with 1-49 employees, according to the ADP National Employment Report. The giants have increased the size of their workforce by 2.8 percent over the 12 months ending in August, while small businesses have grown at half that pace.

By contrast, during 2012 to 2014, the little employers grew at the same rate and occasionally faster than large companies.

Big firms typically grow more rapidly when unemployment is low, and they are able to poach laborers from small establishments with promises of greater pay and benefits, according to research by Yale University economics professor Giuseppe Moscarini. The jobless rate of 4.4 percent in August, near a 16-year low, compares to a peak of 10 percent in October 2009, which was the highest since the early 1980s.

Employees were reluctant to leave their jobs in the aftermath of the 2007-2009 recession, and the rate of transitions is now “creeping up,” Moscarini said. “It’s finally approaching levels that appear normal,” he said. “It seems the job ladder has resumed its normal function.”

Bigger companies have the marketing know-how to draw a crowd of recruits. Inc., the world’s largest online retailer, attracted lines of people in early August for jobs at warehouses in Baltimore and other cities.

The rate of workers quitting their jobs has rebounded to the level prior to the start of the recession in December 2007. Job moves can be pay off: People who switched jobs got 4 percent raises in August, compared to 3 percent for job stayers, according to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker.

Emily Kausalik worked the past four years at two Internet-related startup companies before taking a job as a systems engineer at Home Depot Inc., the world’s largest home-improvement retailer, in August.

“I was ready to work for a company that was more established,” said Kausalik, who’s in her early 30s. “The pay and benefits are definitely great” and an improvement from her prior job.

Beyond that, she was impressed by Home Depot’s new technology center in Austin, Texas, and “they have a clear vision of what they want to accomplish with technology. I was ready to work for a company that had clear goals.”

A large number of startups are formed during recessions or tough economic times, and hiring and retention are more difficult as the economy improves, said Arnobio Morelix, senior fellow at Startup Genome, a San Francisco-based research and consulting firm.

About 31 percent of small businesses found job openings hard to fill in August, according to the National Federation of Independent Business’s monthly survey. That’s triple the share from 2009 after the recession ended.

“Our biggest problem has been to find quality people to help us grow,” said Cade Joiner, owner of Shred-X Corp., a Griffin, Georgia-based company with 12 employees. The company shreds paper and documents.

While job postings on the Internet bring a large number of applications, many candidates have spotty work records, he said.

Southeast Sealing has raised its pay 10 percent or more in the past year and expects to let employees share in profits later in the year for the first time in eight years.

“The money we pay is a decent wage -- equal to or better than most places,” Sullivan said. Still the company has four openings: “There are a lot of jobs out there. There is not a deep pool of workers.”

— With assistance by Jordan Yadoo

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