Inflation is an important economic indicator that can significantly impact the job market.

Inflation is an increase in the cost of goods and services in an economy. When prices rise, currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.

Here are 4 ways inflation can affect your company and its’ employees:

1. Business Profitability

When inflation rises, it can cause wages to have to increase as well in order to attract new talent. It can also cause existing employees to look for new higher-paying opportunities with other firms as businesses try to keep up with the rising costs. On the flip side when inflation falls and things cool off, it may lead to layoffs and a decrease in wages. It’s important to stay up-to-date on changes in inflation so your business can anticipate how they will affect the job market and overall business profitability.

2. Human Resources Management

Inflation can have an effect on Human Resources management in a variety of ways. For example, when it is low and stable, it often results in higher employment levels and wages (particularly real wages) because businesses are more confident about their ability to forecast costs and revenues. Conversely, when high or rising rapidly, firms may become more cautious about hiring new workers or awarding wage increases to control costs. It’s important to have a human resources professional on your side to help navigate these changes as they are happening.

3. Resignation and Retention

During periods of high inflation, employee turnover is likely to increase. This is because workers will be more likely to leave their current position in search of a higher-paying one. Inflation can also affect an individual’s decision to resign from their current position or company. For example, if it is low and stable, workers may feel less inclined to leave their current job in search of greener pastures because they are confident that their current wages will hold their purchasing power over time.

However, if it rises, workers may become more likely to resign to seek a position that will offer them higher wages to keep up with the rising cost of living.

The same principle applies when companies try to retain employees during high periods. Companies may have to offer higher wages to keep their workers from leaving. When low, companies may offer lower wages because workers will be less likely to leave their current position in search of a higher-paying one. Conversely, when low, employee turnover is likely to decrease as workers are less likely to leave their current job in favor of another that may only offer a small wage increase. This can affect a company’s bottom line as it may increase costs associated with recruiting and training new employees.

4. Increase in Cost of Services

The cost of business services is also likely to be affected. For example, if a company uses an external provider for payroll processing, the cost of this service is likely to increase with inflation. This is because the provider will need to factor in the increased cost of their inputs, for example, the labor and office space when setting their prices. This, in turn, will affect the company’s budget and may lead to cost-cutting measures in other areas.

Conclusion

Inflation can significantly impact the job market regarding the overall level of employment and wages, as well as individual workers’ decisions to resign or stay with their current employer. This, in turn, can affect a company’s budget and may lead to cost-cutting measures in other areas. Therefore, companies must be aware of the potential effects on their business and take steps to mitigate any negative impacts.

Need ideas on how your company can support its’ employees during periods of high inflation? Contact us at Klein HR Solutions 305-775-5640 or email: tammy@kleinhrsolutions.com.