Does Inflation have an Effect on Recruiting?

Many leaders are keeping an eye on rising inflation and the potential impact on hiring and retaining staff in a highly competitive talent markets. Employers are seeking more strategic approaches to recruiting and retaining employees through wage increases and more attractive job perks, but the labor market is showing no signs of engagement. Economists expect another round of wage inflation as job candidates and existing workers look for higher wages to keep up with higher prices. Does this have an effect on recruiting?

Inflation in the US has long been low, averaging less than 2% over the last decade. Based on an analysis of the Federal Reserve Bank of Atlanta, wage inflation in the final quarter of 2019 approached 4%. The annual inflation rate for the United States is 5.4% for the 12 months ended June 2021 after rising 5.0% previously, according to U.S. Labor Department data published July 13.

Wait, I’m a Recruiter-What is Inflation?

Inflation is a measure of the rate of rising prices of goods and services in an economy. It can can occur when prices rise due to increases in production costs, such as raw materials and wages. Once inflation becomes prevalent throughout an economy, the expectation of further inflation becomes an overriding concern in the consciousness of consumers and businesses alike.

There are a few metrics that are used to measure the inflation rate. One of the most popular is the Consumer Price Index (CPI), which measures prices for a basket of goods and services in the economy, including food, cars, education, and recreation.

Investopedia.com

In the early stages of an inflation cycle, when the economy begins to boom, more money begins to circulate in the economy. Businesses are not interested in cutting costs when there is so much money in circulation. When the energy, food, raw materials and other goods and services price rises, the whole economy is affected. Rising prices, also known as inflation, affect the cost of living, business expense, borrowing (mortgages, corporate and government bond yields) and other aspects of the economy. Higher inflation raises inflation expectations, which puts pressure on employers to raise pay, so that workers demand an increase to compensate for their loss of purchasing power. Employers pay higher salaries and raise prices, pushing up inflation as labor costs rise. 

Economist and former Treasury Secretary Larry Summers has warned that the Biden administration’s proposed $4 trillion in additional spending, on top of the $5 trillion already approved by Congress, could accelerate inflation despite the Fed’s historically low interest rates. 

Bottom line

Employers adjust the wages they pay their employees over time to ensure that all workers can enjoy the same level of living over time. Those who do not may have difficulty finding talent and may have to settle for less qualified candidates. Some businesses benefit from inflation by charging higher for goods and services but it is rarely passed on to the employees in terms of wage growth.

While inflation may not have a tremendous impact on recruiting in a singular sense, there are other factors affecting the ability to recruit top talent in today’s market. Rising inflation combined with the plateaued workforce participation rate as well as the slower than expected decline in unemployment can spell disaster if not properly regulated.

Before you get too worried, remember the Federal Reserve has the “interest rate” lever it can pull if inflation gets out of hand. Considering the abnormal economic conditions, one would question if this would help or hinder the talent outlook in 2021.

So what do we do?

I wrote about the other Grim Reaper lurking in the war for talent more commonly known as the Great Resignation. In the article, I provide three possible strategies that will help recruiters prepare and quite possibly ENDURE the current economic conditions. Here’s the summary:

• Identify your top talent and show the love
• Stop being CHEAP-You get what you pay for
• Develop and Nurture your Pipeline

If you want to read more, I encourage you to read the article found here. Sorry for the shameless plug.

In addition to reading the post, I’d encourage all recruiters and especially recruiting leaders to be aware of the economic data at our fingertips. You can always check out the latest on the Bureau of Labor Statistics website which is updated monthly. It’s a bit laborious to get through the data but it’s a reliable source to start with.

I am a huge fan of the information provided by Viser and Emsi. It tends to lend itself more toward HR Analytics and is much easier to read. (They also usually have great pictures to help us understand the data!)

If you’d like to see what the latest numbers are telling us, check out this post!

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If you thought 2021 was going to be an easier year in the War for Talent, you are probably already waiting for 2022. It will continue to be a challenging and unpredictable year that will force recruiting to continue to evolve. Be sure to arm yourself with the necessary data points to help your clients navigate the tumultuous waters ahead.