A new survey finds that, while most small and midsized U.S. businesses and their employees believe a recession is likely in 2023, most business owners continue to invest in their employees, electing to avoid salary or benefit reductions.
Instead, businesses are choosing to reduce other operating expenses (29%), increase cash reserves (29%) and increase prices for products and services (26%). This is according to the latest Principal Well-Being Index (WBI) study by the Principal Financial Group, which found that nearly three quarters of all employee (74%) and employer (70%) respondents believe a recession is likely in the next six months (up from 65% of employers in July).
And while businesses of all sizes agree they would try to avoid any action that would negatively impact employees, small businesses — those with under 500 employees — most likely would not take any action to reduce salaries (64%) or benefits (57%). Larger businesses were less enthusiastic, with 49% indicating they would not reduce salaries and 45% indicating they would not reduce benefits offered.
Despite these views, employers overall are actually increasing wages, as nearly two-thirds (63%) of employees report receiving a wage increase within the past year.
Notably, the study also found that more businesses are currently growing compared to this time last year (61% vs. 51%). More than half (53%) of small businesses also reported growth, the highest in 2022 and up from 46% in July. More than 70% of larger businesses — defined as having between 500 and 10,000 employees — reported growth in the most recent October survey.
“If there’s one constant in our research of the small and midsize business community, it’s that they remain committed to their employees. Earlier this year, businesses said they weren’t going to impact benefits or wages, and that sentiment is holding,” notes Amy Friedrich, president of U.S. Insurance Solutions at Principal. “While the economic outlook is murky, business owners understand employees are their most valuable asset and they’re continuing to support them with retirement and protection solutions, as well as financial wellness programs.”
Financial Wellness and Employee Preparation
In fact, driven by large businesses, many employers are offering a variety of financial wellness benefits for full-time employees, and nearly a quarter of businesses are also offering these benefits for part-time employees.
Employee uptake of financial wellness programs increased 70% in the past six months, and 79% agree that these programs help them better prepare for retirement, the study notes. Similarly, 77% agree that financial wellness programs are important to help with long-term goals. At this same time, however, only 62% of people who have yet to use their employer’s financial wellness programs know how to get started.
Meanwhile, about half of employees (49%) surveyed indicate they are already reducing discretionary spending to prepare for a potential recession. This was followed by increasing value shopping for lesser priced brands (48%) and reviewing personal or household budget (45%). “Decreasing savings for retirement” is the least likely action employees would take amidst a recession, with 50% indicating they would not do this.
“Financial wellness tools clearly matter to employees, but building a program is just the start to help employees,” said Heather Winston, director of financial planning and advice with Retirement & Income Solutions at Principal. “Employers can help to further support them by communicating the availability of those benefits and encouraging usage.”
Recession concerns are having a significant impact on employee mental health, especially among younger generations. More than two-thirds (67%) of employees agree that concerns about a recession have impacted their stress levels or mental health, with Millennials (79%) and Gen Z (76%) more likely to report impacts.
“When examining the list of concerns, a disconnect persists between employers and employees,” adds Friedrich. “While employers are more concerned about economic impacts, employees’ concerns focus on personal health and wellbeing.” She suggests that employers have an opportunity to focus on understanding and meeting employees’ needs and addressing them for continued long-term job satisfaction and growth.
Results from this third wave of business insights for 2022 are based on a survey conducted from Oct. 6–16, 2022, among 500 business owners and leaders at companies with between 2–10,000 employees. The results also include input from 200 full-time employees surveyed around the same time.
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