What impact will inflation have on employment?

The repercussions of inflation are seen by businesses of all kinds, from one-person operations to multinational conglomerates. But how exactly will inflation influence the labour market? Employees are demanding higher wages to keep up with the rising cost of living, while businesses are scrambling to find cost-cutting measures that will yet yield a profit.

We asked Monster’s Chief Economist Giacomo Santangelo for his take on the long-term effects of rising inflation on wages, employment prospects, and other related factors. When unemployment is high, he explains, inflation drops. The result is an increase in unemployment, which is problematic because it’s necessary to curb inflation. What follows is essential information.

Why Price Increases Might Harm the Job Market

The anticipated rise in the unemployment rate may not translate into a corresponding decline in the number of people being hired. To paraphrase Santangelo: “Firms aren’t going to slow down hiring; they’re going to change the way they hire.” He believes that in order to cut costs, businesses will stop looking for a single employee to do a number of different tasks and will instead look to hire a number of different people to do those tasks on a temporary basis.

Businesses can save money on perks like healthcare by hiring these people. In addition, they can be hired by businesses at a lower cost than a permanent worker.

Gig economy entry hurdles may be low despite persistent labour shortages, according to studies. Workers are already taking steps in this direction to make up for low pay, according to a recent survey. About half (58%) of respondents said rising prices were the primary motivation for taking on more part-time or temporary work in the past six months.

Formula for Cost-of-Living Pay Raise

It’s not unexpected that workers are demanding wage increases in light of the high rate of inflation. Wages increased by 5.6% over the past year, according to data from the Bureau of Labor Statistics’ monthly jobs report, while prices rose by 7.9%. In this case, the math is easy.

Even while many businesses may be at their financial wit’s end in terms of how much more they can pay employees, Santangelo thinks these issues will have to be dealt with on an individual basis. Talking about a vice president’s annual salary is not going to be the same as talking about a bartender’s hourly wage. In contrast, Santangelo argues, “the commonality between those two persons is the question of, ‘What exactly is my negotiating power?'” ’”

According to Monster’s analysis on the future of work, candidates value “financial reward beyond salary” and “fair salaries” above everything else when deciding between job offers. If a company can’t afford to provide its employees a standard increase in pay, it will need to come up with other ways to keep its best workers.

Will Future Inflation Cause a Downturn?

Reports reveal that consumers are already reducing their spending, adding to the growing concern that a recession may occur as a result of inflation. To combat inflation, the government typically causes a recession, as Santangelo explains: “Historically, anytime inflation is as bad as it is right now—which it was in the late 1970s.” That is definitely going to occur.

Thankfully, businesses can take precautions to ensure their survival in the event of an economic downturn. Businesses should prepare for what seems to be the inevitable by increasing spending on marketing and customer service.

Maintain a keen eye on the latest developments in the job market.

Career Hunts is committed to supplying businesses with the intelligence they require to succeed. Visit Monster Intelligence to learn more about statistics and labour market trends, and how they may affect your organisation, as you plot out your hiring strategy for the coming month.