Inflation poses new challenges for recruiting and retention

Inflation is at a 40-year high, and wages aren’t keeping up
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5 min read

Like an understudy waiting in the wings for their theatrical debut, inflation is always milling about behind the scenes. Sometimes, however, it shoves its way to center stage and steals the show—like right now: Inflation is at a 40-year high in the US. As we slog through the third year of the pandemic, a multitude of factors—including supply-chain bottlenecks and Russia’s invasion of Ukraine—have contributed to price increases nationwide.

The Consumer Price Index rose 7.9% in February, with the price of food, fuel, and shelter contributing most to the increase in average prices paid for goods and services, according to the Bureau of Labor Statistics (BLS). Worker wages and salaries rose 4.5% on average over 2021, but for many, those gains were modest, or even completely superseded by inflation’s dramatic increase.

“Out of 12 sectors, workers in only two have gotten wage increases [that are worth] more than inflation—construction and leisure and hospitality—but most workers’ buying power has fallen,” Teresa Ghilarducci, a professor of economics and policy analysis at the New School, explained to HR Brew.

Ghilarducci and University of Cincinnati economics professor Michael Jones said that HR departments can combat the strain of inflation by prioritizing some broadly popular work arrangements—namely, remote work.

But wait, why is inflation so high now? Restrictive Covid policies in China have caused a shipping quagmire that’s currently affecting every teenager listlessly waiting for their PlayStation 4 to arrive. “China has eight of the top 10 largest ports in the world. And all of them are in cities that have had restrictions on movement” at some point over the last two years, Ghilarducci said. “It meant the port workers didn’t go to work.”

Currently, inflation is largely driven by supply issues as “consumer spending has shifted massively towards goods and away from contact-intense services” as a result of the pandemic, prompting shipping bottlenecks and increased prices, a report by the investment management firm BlackRock concluded in January. BlackRock president Rob Kapito said last week at an oil and gas convention in Texas that inflation was poised to hurt “a very entitled generation” of consumers “that has never had to sacrifice,” Bloomberg reported.

“Consumers still want these goods and services, and [if] manufacturing can’t respond, then that’s obviously going to cause prices to go up,” Jones explained.

Gas prices are also surging. The Biden administration banned imports of Russian oil, natural gas, and coal earlier this month, following the country’s invasion of Ukraine. The geopolitical situation “affects oil and energy prices,” Jones said, but the price of fuel was surging prior to US government sanctions on Russia. In February, the price of gasoline “rose 6.6%…and accounted for almost a third of the all-items monthly increase,” according to BLS data.

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Of course, corporate profits are also surging, leading to accusations that inflation is at least partly exacerbated by private-sector greed. In February, the Department of Justice’s Antitrust Division announced that it would prioritize investigations where supply chain disruptions were potentially being exploited for “illicit profit.”

How does this affect HR? There were 11.3 million job openings in the US at the end of February, according to the latest jobs report from the BLS, and with inflation outpacing wages by around 3%, it can present a problem for recruitment and retention. “There is this gap [in] inflation right now. It’s at just under 8%. And then wages are around 5%. So, [a] pretty big gap,” Jones said.

Some companies are responding to inflation by boosting base pay, but 85% of organizations  “expressed concern that inflation would erode the value of pay increases,” according to Payscale’s 2022 Compensation Best Practices Report, which surveyed 5,578 management-level workers between November 2021 to January 2022.

And with the price of gas presenting headaches for many commuters, allowing employees to work from home could ease at least some of the burden, Ghilarducci argued. “If I want to retain workers, I [would] really pay close attention to their wanting to work from home or work in a way that would save their commute costs,” she said.

“Workers are prioritizing [remote work], even over wages, because they have some flexibility,” Jones said. “They can work in Ohio, for example, while maybe enjoying that New York salary or California salary. So what you’re seeing is that companies are competing on other benefits and packages” in lieu of greater salaries.

Adding another complication to this dilemma four decades in the making? When it comes to total compensation packages, workers want different things.—SB

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @SammBlum on Twitter. For completely confidential conversations, ask Sam for his number on Signal.

Quick-to-read HR news & insights

From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.