How inflation hurts hourly workers

How inflation hurts hourly workers

With inflation at its highest rate in more than 40 years, many hourly workers are seeing that their money isn’t going quite as far as it should.

With inflation at its highest rate in more than 40 years, many hourly workers are seeing that their money isn’t going quite as far as it should.

In May, the Consumer Price Index increased to 8.6 percent. The index accounts for costs across goods and services and is a key inflation measure.

The increase was “broad-based” with the indexes for shelter, gasoline and food being the largest contributors. Those increased costs immediately affect businesses like those in the hospitality, retail and restaurant industries that rely heavily on hourly labor.

Inflation particularly hurts employers in these businesses because there’s an inability to attract and retain candidates for a position—this was already a struggle the past two years because of “The Great Resignation,” which was a colloquial name used over the past two years for a mass exodus of employees leaving jobs to pursue another opportunity or to learn new skills and pursue another career entirely.

The result is that often you’ll end up seeing employees leave a job in search of greater wages somewhere else. Unfortunately, those higher wage offerings can still be misleading because those wages simply don’t have the same buying power as before

Inflation hurts wage growth

Inflation has a direct impact on the value of the purchasing power of the dollar. Combine the decline in the dollar’s value with labor shortages across the board, and that’s why we start to see employees make requests for higher wages.

It might seem counterintuitive, but inflation actually drives wages up. There’s an increase and a demand for services, so businesses increase wage offerings significantly to bring in new labor.

The rise in inflation prompts workers to demand more money and look for jobs that can pay more, and that effectively reduces the labor supply. Wages are up compared to where they were last year, but inflation effectively wipes out any wage gains from hourly workers. 

Businesses respond to inflation

One of the most obvious responses to an increase in wages and inflation for small to midsize businesses is for them to raise prices on their goods and services. Passing the cost on to consumers is one of the main tools businesses use to combat inflation. 

As total costs increase, employers can start to look for cost-saving measures they can take to reduce expenses. Unfortunately, one of a business’s largest expenses is its employees. So, hourly or lower-wage workers can be hurt by a business’s immediate response to cut those expenses by cutting hours, furloughing employees, or worse, laying them off. 

Inflation and supply-chain issues create workforce challenges that weigh heavily on business owners, and those challenges come with tough decisions often at the expense of their employees. 

Helping Employees

One of the most obvious ways a business can help its employees is by offering them more money, if possible. But there are other steps you can take to take some of the load off of these workers. 

  • Examine healthcare costs and hold off on increasing premiums
  • Communicate to employees any financial wellness benefits you have in place
  • Allow employees to work remotely when possible to cut down on operational costs 
  • Invest in other perks like wellness and childcare subsidies

Attracting and retaining employees can help outweigh the costs and show employees how much you value them. 

If you need help evaluating different cost-saving measures for your business to help your employees, we would love to help you

Posted Jul 7, 2022
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