Rising Labor Costs: A Challenge for Small Businesses in 2023

Learn from small business owners' perspectives and discover cost management techniques to help your business deal with rising labor costs.
REMOTO WORKFORCE Team I Updated on - February 6, 2023

As a small business owner, you’re likely aware of rising labor costs’ impact on the global economy. These costs include wages, salaries, bonuses, benefits, and other related expenses that entail economic difficulties.

With the current economic landscape changing rapidly due to shifting demographics and increasing minimum wage laws, small businesses need to understand how these changes will affect their ability to survive and grow in 2023. In fact, from this understanding, it depends on a small business’s resilience and its ability to face economic uncertainty.

In this blog post, we’ll address all you need to know about how businesses can overcome obstacles related to rising labor costs in 2023. Additionally, you’ll learn the four best cost management tactics from small business owners’ perspectives on the American economy


Surging Labor Costs Continue to Rise Quickly: Here’s What’s Behind the Increase

One of the most significant causes of rising labor costs in the American economic forecast is the demographic shift over the past decade.

As baby boomers retire from the workforce, they’ve been replaced by younger generations who demand higher pay, better job security, and overall well-being. This indeed leads to rising costs in wages and salaries across all industries. 

For instance, Megan Leonhardt reported that Gen Z and millennials enjoy the biggest salaries after the Great Resignation in the U.S., while older generations are retiring or trying to navigate economic obstacles like scarcity. 

Although automation software and AI technologies are increasing efficiency levels in several economic sectors, which can lead to a decrease in labor costs, the threats of inflation and recession are putting pressure on small businesses to raise salaries, augmenting expenses and affecting businesses’ survival.

Therefore, minimum wage laws, like those promoted in California, are becoming more prevalent worldwide as governments seek to improve economic conditions for their citizens. Small business owners have done their part in understanding their essential role in enhancing worker well-being and the country’s overall economic activity.

If you want to learn how to cope with labor costs, watch this video.



Conquer Rising Labor Costs in 2023: 4 Best Cost Management Techniques to Make an Impact

Small businesses face unique challenges when it comes to rising labor costs because they typically operate with limited resources and capital reserves. This means that hiring new employees or increasing salaries can quickly deplete their funds without guaranteeing success or growth.

Additionally, rising labor costs can lead to decreased profitability as expenses rise faster than revenue streams. If a small business cannot adjust quickly enough, this could lead to a decrease in sustainability over time and potential insolvency if not managed correctly. This is why owners need strategies to succeed amid rising costs. 

Fortunately, there are four best cost management techniques that small businesses can use to combat rising labor costs successfully and rescue the American economy. Let’s explore them in detail.


Deepening Automation Processes with AI

Automating processes with AI is one of the most effective ways for small businesses to save money and reduce their labor costs. By utilizing AI automation software, businesses can streamline their processes, lower manual labor costs, and improve efficiency.

Additionally, automating processes will help ensure consistency and accuracy when completing tasks so that mistakes are not made due to human error. Doing this will free your employees from unnecessary burdens, enhancing their engagement, morale, and well-being at the workplace.


Outsourcing Remote Employees

Outsourcing remote employees can be a great way for small businesses to reduce their labor costs while still getting access to their needed expertise. By outsourcing tasks, such as accounting or marketing, businesses can free up time for their existing employees and focus on core activities that require more specialized knowledge or attention. 

By nearshoring workers from Mexico, you’ll have the unique opportunity to foster an intercultural dialogue with highly-skilled professionals who can propel your company to even greater heights. Contact us to learn more about your options!


Investing in Training Programs

Investing in training programs can help reduce labor costs by ensuring that employees are competent and capable of completing necessary tasks efficiently and effectively.

Having well-trained employees who understand the company’s mission statement and values will also result in better customer service and satisfaction levels, leading to more repeat business in the future. 


Implementing Flexible Working Arrangements

By offering flexible working arrangements, employers can tap into a larger global talent pool than before while protecting businesses from rising labor costs. This also opens up the potential to gain access to experienced professionals with unique skill sets who may not be available in the local labor market.

Additionally, remote or hybrid working options provide greater freedom for employees with personal commitments that might otherwise limit their ability to take on full-time jobs. Workers are actually more productive when allowed to work from home or another remote location due to reduced distractions and increased comfort levels.

Adjusting a company’s office space accordingly can also help create a more collaborative work environment where team members feel empowered to share ideas and collaborate better. It also reduces the likelihood of workplace burnout as fewer hours are devoted to commuting and other time-consuming activities.

Evidently, operating remotely or using a hybrid model is advantageous for both employers and employees alike!



Like any other business expense, the cost of labor is something that all small business owners must keep a close eye on. With the right strategy in place, you can conquer rising labor costs and continue to run a successful operation.

Automating processes, outsourcing remote employees, investing in training programs, and implementing flexible working arrangements are all great ways to make an impact in the American economy.

Which of these strategies do you think would work best for your small business?


Our company is a full-service staffing agency specializes in outsourcing remote employees based in Mexico. A business model designed for US companies.


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