In this economic readjustment period, workforces are under tremendous pressure.
During the pandemic, worker productivity peaked. However, surveys indicate that most frontline workers are overworked and unmotivated, with rising inflation exacerbating low employee engagement.
Organizations are increasingly dependent on the skills and contributions of their people. Many, if not most, organizations are still catching up from the Great Resignation as they look for the right people with the right skills — and ways to retain them.
The pressure that comes with inflation doesn’t mean employers need to take a back seat from providing a positive employee experience. On the contrary, this can be an ideal time for organizations to demonstrate value to employees so that people can adapt alongside the business.
In the long term, it will be harder for any organization to recover from this economic downturn if they don’t address pandemic and inflation-induced pressures on their workforces through pay adjustments, contingent workforce growth, and job redesign.
Learn how audiovisual pioneer Dolby is recession-proofing talent efforts with a skills-based workforce that includes contingent workers.
Here’s what every talent leader needs to know about how inflation affects wages so you can make informed decisions about supporting your people — and the business.
How Inflation Impacts Wages
While some inflation is healthy, typically around 2 percent annually, rapid growth or price decline can negatively affect the economy.
When inflation rises, people can no longer buy as many products with the same amount of money, so purchasing power erodes. And if wages don’t grow at a similar rate as prices, inflation can devalue people’s wages and savings while increasing the cost of living.
It’s challenging to forecast how interest rates, wages, or profits change with inflation or deflation. Unfortunately, this uncertainty often leads to cautious consumer spending — and hiring freezes or layoffs — which further stunts economic growth.
Today’s economy is even more complicated, given the job market remains incredibly competitive depending on the industry. Tech is laying people off, but there are still labor shortages in sectors like healthcare and transportation.
Additionally, job openings remain elevated compared to historical standards, despite trending down from higher pandemic levels. This indicates that employers are still looking for workers to fill open positions, as there are roughly two job openings per unemployed worker.
While a strong and resilient job market usually indicates a strong economy and is typically favorable, it is precisely what the U.S. Federal Reserve would like to see less of today. In fact, the central bank’s mission is to dampen employment to fight against a record 40-year-high inflation rate. As a result, the aggressive increases in interest rates to combat inflation have spurred growing fears of an impending recession in recent months.
So when demand for workers is higher, employers tend to increase wages to lure workers, driving up overall wages. That’s happening today: wage increases and sign-on bonuses are definitely on the table to entice workers to stay. But when inflation is factored in, “real wages” actually decrease.
3 Workforce Planning Factors That Prevent Future Labor Shortages
With a recessionary environment looming, organizations will likely see more volatility and should take workforce planning seriously. However, when traditional planning fails in the face of uncertainty, organizations need to adopt agile, flexible, and creative approaches to come out on top.
For instance, when travel demand picked up in 2021, many airlines were short-staffed due to a lack of proper planning. And when airlines hired again, new employees weren’t familiar with protocols. This led to canceled flights, delays, lost luggage, negative customer experiences, and a decline in revenue.
To avoid scrambling for skilled talent when the time comes to ramp up hiring again, organizations shouldn’t make workforce reduction decisions in haste. However, if releasing surplus workers is on the horizon, taking care of the employees you’re keeping on board is essential.
Here’s how talent leaders can meet the moment to retain workers:
Reassess pay strategy. According to a JUST Capital survey, 87 percent of Americans believe large U.S. companies are responsible for regular wage increases to keep up with the rapidly rising cost of living.
For example, T. Rowe Price offered most of its global staff a 4 percent salary increase “to reward their commitment and ensure that [they] remain an employer of choice.” And Walmart announced a raise in average hourly wages for nearly 40,000 pharmacy technicians to more than $20 an hour.
Organizations have a responsibility to take care of their employees. Meeting employee expectations with benefits, perks, and rewards goes a long way toward improving the employee experience and retention rates.
Build a robust contingent workforce. As organizations figure out how to do more with less in the face of labor shortages and recession fears, more are turning to contingent workers to drive the business forward. As a result, organizations can proactively prepare their talent strategies for changing business cycles.
For example, Eightfold customer Dolby is building an elastic workforce with contingent workers as a long-term talent strategy to scale up and down as needed. The audiovisual pioneer uses a unified view of all talent to source skilled contingent workers at the right time.
Redesign jobs to make them more attractive by focusing on skills. Committing to the same levels of productivity and customer satisfaction with a reduced or burnt-out workforce is challenging. Organizations must get creative to improve the employee experience and value proposition while maintaining business continuity.
One tactic is to redesign jobs to improve the work and strategically redeploy people to accomplish that work. By deconstructing jobs to the skill level, organizations like BNY Mellon can “look at skills and capabilities of every person, beyond LinkedIn and the resume, into what people have done before and what they are capable of doing in the future.”
The Case for Taking Care of Employees
It’s up to talent leaders to understand how business cycles function and how economic uncertainty impacts employee engagement, performance, and satisfaction.
While inflation is expected to stay elevated for the rest of the year, estimated at around 7 percent by December, it will cool gradually in 2023. If organizations can increase flexibility, promote more inclusive advancement opportunities, and fair pay adjustments for inflation, workers will be more likely to bring their best foot forward.