For decades, small business owners complained they couldn't find workers. The NFIB survey tracked it month after month: too few qualified applicants, too many open positions, not enough hands.
That story hasn't disappeared. But the May 2026 data shows a new problem is crowding it out - and it's one with no easy fix.
Labor costs are now the single biggest concern in the survey's 50-year history. 14% of small business owners named labor costs as their top problem in May, up 5 points from April. That's the highest reading the National Federation of Independent Business has ever recorded for this category.
Let that land: not tariffs. Not regulation. Not inflation. Labor cost is now the #1 reported pain point - for the first time ever.
What Changed
Job openings actually fell. In May, 29% of small business owners reported unfilled positions - down 5 points from April, and the lowest reading since May 2020. So owners are trying to hire less aggressively than before.
But here's the thing: the workers they already have are getting more expensive.
State and local minimum wage mandates have been rolling out across dozens of states over the past two years. Many kicked in on January 1, 2026. Others take effect mid-year. Owners who thought they'd absorbed these increases are now realizing the downstream effect - when your bottom wage goes up, every rung above it tends to drift up too.
"Concerns about rising labor costs increased significantly to the highest reading in the survey's history," said NFIB Chief Economist Bill Dunkelberg. "Small business owners are facing mounting pressure to retain workers, and many firms are navigating costly new state mandates."
The Hiring Picture
Hiring plans dropped to their lowest level since May 2020. A net 9% of owners plan to create new jobs in the next three months - down 4 points from April, and now below the historical average of 11%.
Here's the math in plain terms: if 9 out of 100 owners are actively planning to hire, that's a meaningful pullback. It means Main Street is holding headcount rather than growing it.
55% of owners said they were hiring or trying to hire in May - up 2 points from April. But 46% of those said they found few or no qualified applicants. The applicant quality problem hasn't solved itself. Owners are just less willing to fight through it right now.
What Owners Are Doing About Compensation
Despite the cost pressure, pay raises are holding steady - for now. A seasonally adjusted net 31% of owners raised compensation in May, up 1 point. A net 18% plan to raise compensation in the next three months, unchanged.
In other words: owners are raising wages because they have to, while simultaneously reporting that those raises are squeezing them harder than anything else. It's a pressure cooker that compression makes worse - you can't easily cut pay when costs spike on the other end.
So What?
If you run a business with employees, here are the three things worth taking from this data:
Track your labor cost as a percentage of revenue, not just a dollar amount. When inflation is running and wages are rising, you can feel like you're keeping up while your margin quietly shrinks. The owners showing up in this data aren't necessarily paying bad wages - they're paying wages that no longer fit the revenue they're generating.
Budget for mid-year wage adjustments. Several states have second-round minimum wage increases scheduled for July 2026 and January 2027. If you employ anyone near the minimum wage threshold, this isn't a hypothetical.
Hiring freeze doesn't mean problem solved. Owners who pulled back on open positions in May aren't out of the woods - they're holding a workforce that costs more than it did six months ago with no offsetting revenue bump. Watch your Q3 numbers closely.
The full NFIB May 2026 Jobs Report is at nfib.com.
Priya Kapoor covers small business finance and economic data for The Useful Daily.