Impact of the current inflation levels on the job market (5 mins Read)

Starting from small businesses to the large corporations, companies of all types are not immune to the effects of inflation. However, the biggest question is how will inflation actually affect the job market? On one hand the employers are finding ways to cut the costs to make a good profit, on the other hand, the employees are asking for a higher pay in order to combat the increasing costs of living.

Let us have a look at how high inflation will impact jobs, compensationandmuch more in the coming months. The relationship of employment with inflation is that when unemployment is high, the inflation is low. The problem this creates is that in order to fight the high inflation, unemployment needs to go up. So, we need to know:

How the high levels of inflation may affect hiring

Only because unemployment has to increase doesn’t necessarily mean that hiring will have to be reduced. Companies aren’t going to reduce the hiring, rather they would make some changes in the way they hire. Employers would move away from the conventional way of hiring one full-time employee to perform a job, instead they would seek to hire multiple contract, part-time, or gig workers in order to save costs for the company.

Hiring these types of employees mean that companies won’t be required to pay for the expensive perks and benefits like healthcare. Companies can bring them in at a much cheaper rate and benefits than a full-time employee.

In spite of the labour shortages, research shows that the obstacles for the companies moving into the gig economy could be minimal. A recent survey has found that the employees are already moving in this direction as an option to make up for less pay. As per the survey, around 85% of the employees have increased or planned to increase their gig work in the past six months, with about 60% citing inflation as the major reason behind this change.

How salary needs to be adjusted for high inflation

Considering the high levels of inflation, it’s quite natural that the employees are asking for more money in order to cope up with the greater costs of living. A report shows that although the wages have been increased by only 5.5% over the past one year, while the costs have increased by around 8%.

While many employers are reaching their limits in terms of how much more they can pay their employees, they will have to address these concerns on a case to case basis. For example, considering a hike in a waiter’s hourly rate is going to be much different in the way than the one regarding a vice president’s annual take-home salary. However, the commonality between those two individuals is the question of what exactly is the bargaining power.

For the candidates, a report showed that the financial compensation apart from the salary and fair wages are the most important factors for the job seekers right now. Employers who want to hold onto the good employees need to be very creative if they don’t have the budget for the raise percentage.

Will the levels of inflation create a recession

The fears of recession is rising amid the high levels of inflation with reports showing that the consumers have already started cutting down on their expenditure. Historically, it has been seen that whenever inflation has been as bad as it is right now, which it was in the late 1970s—the way that the government fights inflation is by plugging the economy into a recession and that is going to happen.

However, there are steps which companies can take to insulate themselves for when the economy goes down. Starting from investing more in marketing to prioritizing the service provided to the customer, employers should brace themselves for what seems to be inevitable.

Be on top of the labour market

Employers need to get the insight required to move ahead in this situation. As they plan their hiring strategy for the next month, they have to dive deeper into the data and labour market trends and what will it mean for their business.

Conclusion: The biggest risk of inflation going ahead is not a continuation of the forces which are currently at work in the goods sector. This will not be persistent. Instead, the biggest risk is that the huge increases in demand for the workers in the services sector will not be met by the equally large increases in the labour supply.

Policymakers can encourage the labour supply by continuing to get the pandemic under control through vaccinations and sensible health policies. Further, the policymakers can also remove the barriers which make work costly, such as lack of access to affordable and good quality childcare. Finally, immigrants are a major source of workers in the U.S and rates of immigration are comparatively down from the pre-pandemic projections. A return to more usual levels of green card issuance would help to expand the labour supply in the U.S. in order to meet the growing demand for labour. To put it in short, the policies which will rein in inflation in the future are the same policies which support a sustained and equitable labour market recovery.

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