Labor Supply Falling Short


A shortage of qualified workers, once thought to be confined to a few select areas and companies such as software makers, has become a widespread, critical problem afflicting many small businesses throughout Southern California.

For high-growth firms, finding skilled labor is now their most pressing issue, more than competition, access to capital or even taxes and government red tape, according to a survey of nearly 1,700 small businesses by the Los Angeles Times and professor William Gartner of USC's Marshall School of Business.

The Southern California Business Climate Survey, conducted by mail in June, found that a majority of small businesses are grappling with a labor crunch to some degree. The problem cuts across skill levels and geographic and industry lines. Strikingly, a full one-sixth of all businesses said that a lack of capable workers has been a severe constraint on their companies in the last year.

Follow-up interviews with survey respondents indicated that, short of throwing out their hiring budgets, small businesses have taken all sorts of steps to alleviate the situation. But few have found antidotes to this condition, which has been festering nationwide.

Small-business owners in the region had harsh criticisms for local schools and training programs, complaining that too many workers come with narrow skills and poor work habits.

John Ramirez, president of Digital Image Studios in Fontana, never thought he would be turning away business. But that's what he has been doing in recent months, he says, because he doesn't have adequate help.

"It's stunted my growth," he said.

Ramirez, 34, started his computer animation firm a decade ago in his home, investing $4,000 in a single computer and some supplies. The business now has eight employees who jump from one of two dozen computers to another in Fontana and Rancho Cucamonga. But Ramirez could use at least three more workers. Two 3-D animation openings, he says, have gone begging for a whole year.

Expertise Is Hard to Find

Such specialty jobs, of course, have never been easy to fill anywhere. But these days, with the nation's unemployment rate continuing to hover at its lowest in a generation (it was 4.5% in August), employers across the board are struggling to find and keep good workers.

"You're talking about insurance agencies, restaurants, car dealerships. Go up and down the street, there's just a lack of people," said William Dennis, chief economist at the National Federation of Independent Business, a small-business research and lobbying group in Washington.

"For the first time ever," Dennis noted, "our monthly survey showed more than 20% of the small-business population is finding that skilled labor is the single most important problem."

The problem will probably diminish as the economy continues to slow, which will push up the unemployment rate. But that's less likely to happen right away for relatively fast-growing areas such as Southern California.

Tim Baskerville thought he had an answer to his labor shortage. A year ago, he moved his business publications company from a sleepy street in Thousand Oaks to a busy area in Sherman Oaks crisscrossed by two major freeways, just so he could draw from a bigger pool of workers.

But where did Baskerville find his last two analysts? In Washington and London.

"This does not pass the common-sense test," said the owner of Baskerville Communications Corp., which has a staff of 30 scattered throughout the world.

"It wouldn't seem too big of a stretch to find someone with expertise in Latin American telecommunications in L.A.," Baskerville said. "We got dozens of applicants, but we just couldn't find enough experienced people." In the end, he settled on a person in Washington.

What employers like Baskerville are experiencing does seem perplexing, given Southern California's huge and dynamic labor market, which is fed by a stream of new arrivals from other states and regions of the world.

But it is the sudden burst of demand for workers, especially in multimedia and certain manufacturing industries, that has strapped so many employers.

In just a matter of a couple of years, labor markets in Orange and San Diego counties have become among the tightest in the nation, as those areas have produced new jobs at a sizzling rate. Even Los Angeles County's jobless rate has fallen sharply, to its current figure of 6.1%.

The region's bigger and more diverse economy also means that it has that many more needs.

Successful Firms Feel the Pain

In this environment, no one is as hard-pressed as the fast-growing small company. On the one hand, such businesses have a tremendous need for workers to meet burgeoning orders. Yet they are often unable to compete with large firms for workers.

Digital Image's Ramirez, for example, says his starting pay for animation artists is about $60,000--nowhere near the kinds of salaries offered by big specialists such as Pixar Animation Studios in the Bay Area.

Certainly a small company could remedy its labor shortage by bidding up wages. But that's easier said than done, for it raises both cost and equity issues.

Bringing in a new recruit at a higher rate, for example, could create morale problems among existing workers, said Daniel Mitchell, a labor economist at UCLA.

"Small businesses have disadvantages in more traditional kinds of benefits like health care, because they don't have the economies of scale," Mitchell said.

There are few signs thus far of broad wage increases in Southern California. Rather, the Times/USC survey results suggest that employers are addressing their labor problems by increasing training, hiring more temporary employees and trying to boost productivity, in some cases, by upgrading their equipment and programs.

Jim and Susan Cunningham, for example, have spent $30,000 and an inordinate amount of time putting in a new work-order tracking system at their bicycle paint shop in Vista. The couple hopes that when the system is running next year, it will give workers better information, cut paperwork and speed up the flow of work.

"I think it would help a lot, but it probably won't solve the problem," said Jim Cunningham, who has eight employees but could use at least four more, including an assembler, a skilled painter and a sales manager.

Cunningham knows part of his hiring difficulty is his outlying location in north San Diego County. But he thinks the shortage is symptomatic of a profound change in labor.

"The underlying problem is that skilled labor in manufacturing is not valued," said Cunningham, 43, who founded CyclArt Inc. in 1976. "People don't recognize skilled labor when they see it, they can't differentiate it from mass production."

Young people have increasingly turned away from pursuing jobs in skilled labor, which they perceive as being grimy and demeaning work. That perception, many believe, helps explain the manufacturing industry's unusual bind. Few are having as much trouble finding workers as Southern California's machine and metal shops, where many lathe and tool-and-die stations are bereft of workers.

"The most severe impact seems to be in manufacturing," said Julie Puentes, executive vice president of the Orange County Business Council, an Irvine group.

But the skill and experience deficiency is everywhere.

Stephanie Wagner, owner of a civil engineering firm in Sherman Oaks, has been trying to bulk up her staff of eight. She has interviewed countless people in search of land surveyors and designers literate in computer-aided design.

"With the advent of computers in my industry, somewhere along the line, we missed the link," said the president of Wagner Engineering, a 9-year-old firm.

"People were doing maps by hand and they had to understand what they were doing. Now they come out knowing [the] CAD program, but they don't know the mechanics of the actual work," Wagner said.

"My business is doing well right now. But it could be doing better, if I could hire better-trained people. That would be a big asset."

Gartner will discuss the survey at The Times' Small Business Strategies Conference Oct. 17-18 at the Los Angeles Convention Center. For more information, call (800) 350-3211 or visit the event's Web site at


Help Wanted

A lack of qualified help has affected many small businesses in Southern California, but it has been especially hard on firms with strong sales.

Availability of Skilled Workers

High-growth firms

Not a problem: 29%

Moderate problem: 30%

Serious problem: 41%


Other firms

Not a problem: 41%

Moderate problem: 29%

Serious problem: 30%

Source: Southern California Business Climate Survey

How the Poll Was Conducted

The Times and USC's Marshall School of Business mailed out a seven-page questionnaire on June 19 to a random sample of 30,000 businesses in Los Angeles, Orange, San Diego, San Bernardino, Riverside and Ventura counties. The firms were drawn from Dun & Bradstreet's database of all businesses in the six-county region, from which companies with fewer than 500 employees were selected, in accordance with the Small Business Administration's definition of small businesses. About 3,000 questionnaires were returned undeliverable. From the remaining 27,000, 1,670 valid responses were received by the cutoff date of Aug. 8, representing a return rate of 6%, considered good for an unsolicited direct-mail survey. The responses were tabulated under the direction of William Gartner, professor of entrepreneurship at USC's Lloyd Greif Center for Entrepreneurial Studies. The results were benchmarked against national figures and regional industry data kept by the Los Angeles Economic Development Corp. The survey results show that 55% of the responses came from Los Angeles County, 16% each from Orange and San Diego counties, 6% each from Riverside and San Bernardino counties and 1% from Ventura County. The sample also is fairly representative of the industry mix in the region, although there are significantly more manufacturers and somewhat fewer construction firms and food retailers than their actual numbers in the six-county area. The sample tends to favor older, mature firms, reflecting D&B;'s database, which generally is made up of more-established businesses with a credit report. Based on the sample and the results, however, Gartner determined that the survey is representative of the small-business population in Southern California.

Business Climate Survey Details Concerns, Strengths

A weekly series of stories on the state of small business in Southern California begins today, based on a first-of-its-kind poll of businesses from San Diego to Ventura that was conducted by The Times and the USC Marshall School of Business.

Today: A majority of survey respondents think critical problems that existed during the recession--government regulation, worker training, access to capital--have not been addressed. A1, D1

Next Wednesday: Minority-owned businesses are younger than white-owned firms, trail them slightly in sales and tend to rely on less conventional sources of financing. But they share similar concerns about a dearth of skilled labor and the burdens of taxes and regulation.

Oct. 7: The Southland's women-owned businesses are nimble and tech-savvy, but a lack of financing keeps some from expanding.

Oct. 14: Violent crime may be down, but small businesses continue to be plagued by the petty variety. From graffiti to vandalized pay phones, loitering to the use of sidewalks as public toilets, small-time crime--which often goes unnoticed by officials--hits entrepreneurs in the pocketbook and takes its toll in frustration.

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