(Wage) Inflation: The Moment of Truth Employers Will Face with Annual Increases Looming
by John Baldo on Thu, Jul 14, 2022
If you’re an employer plagued by nightmares of “The Great Resignation” or “The Great Re-Awakening,” remember that these terms only describe a workforce phenomenon - one that, depending on your approach, can be a benefit or bane to your organization. It is wise to remember the words of Thomas Hobbes (three of them, anyway): “Knowledge is power.”
By understanding and addressing the challenges your employees are facing with inflation, rising household costs, and concerns with company benefits, you can harness that knowledge to make better decisions for your employees and your business.
The most relevant economic data (below) outlines a solid rundown of the daily concerns that you, your employees, and your business face in the current economic climate. By understanding the ground-level situation(s) your employees face now, you can effectively position your response as a thoughtful, employee-centered business while maintaining your organizational “locus of control”.
As we review the economic data for a minute or two, you might feel a bit like Macbeth watching Birnam Wood’s march on Inverness Castle, but we’ll get through it. We believe in foregrounding “the bad news” so you can organize your thoughts, formulate an adaptive strategy for your business, and respond to your employees’ needs carefully, compassionately, and with a crystallized understanding of their concerns.
First things first. According to the Department of Labor, the U.S. inflation rate rose to 8.6% as of May 2022. Likewise, the Bureau of Labor Statistics reports that the consumer price index (CPI) rose 8.5% between March 2021-March 2022, dropping slightly in April. As you might expect, gas and food account for the most glaring price increases, but even outside of those two sectors, “core prices” are up 6.5 percent annually, according to Greg McBride, CFA of Bankrate.com.
We’ll break down specific cost increases in the next section, but suffice it to say that 2021-2022’s variable 4.5%-6% increase in wages falls woefully short of negating the price increases economists are witnessing in costs related to gasoline, groceries, rent, child care, average mortgage payments and more. In the next section, we’ll explore how inflation is concretely impacting employee spending habits and outline the data that’s been collected regarding what employees reasonably expect from employers in response to inflation.
How Wages Are Being Spent: Gauging Employee Expectations
Don’t resent the messenger (in this case, the Bureau of Labor Statistics), but be aware that even with overall unweighted wage growth increasing approximately 6% between 2021-2022, average increases in everyday costs far outpace this figure. For reference, let’s take a quick look at average price increases across 2021 and into 2022:
Groceries – 10% increase
Gasoline – 48% increase
Monthly Rent Costs – 14% increase
Mortgage Payments – 21.6% increase
Utility Gas Service – 32% increase
Electricity – 12% increase
As a direct consequence of inflation, employers and employees are scrambling to find workable solutions. From the perspective of employees, wage and salary expectations are on the rise. According to a survey of 5,000 workers conducted by the advisory firm, Grant Thornton LLP, 91% of employees expect a pay increase of over 6% in 2022, with 21% of those sampled expecting a raise of 10% or more. The same Grant Thornton survey found that 80% of employees want greater flexibility regarding when and where they work, while 22% cite mental health as their “greatest stressor.”
Adaptive Solutions & Responses
For employers, these latter percentages regarding workplace flexibility and mental health represent opportunities to offer employees what they desire in a relatively low-cost or even cost-effective fashion. Bear in mind that a myriad of surveys show that a significant number of employees are resigning from their jobs due in part to the costs of commuting, child care, and other expenses related to regular in-office/on-site work. Add to that the growing consensus that hybrid and remote work confers improved mental health to employees across industries and even increases productivity. All of these factors should give employers pause. Our recent article, “What’s the Data on Switching to a Remote or Hybrid Workplace?” offers some data-driven encouragement to adopt fully remote or hybrid work styles for a large portion of your workforce.
Independent of inflation, remote and hybrid work is surfacing as an increasingly viable and favorable way to meet employees’ stated needs and improve productivity. If it simultaneously helps to address some of the most acute stressors or burdens specifically related to inflation….you now have one of the answers.
With all of this said, employers must be delicate in discussions regarding wage increases and raises, particularly if it’s not fiscally possible to accommodate an employee’s exact or preferred request. Consider that in 2022, most U.S. businesses anticipate implementing merit-based salary increases of 5% or more. Considering the figures that we outlined in the previous section (regarding employee raise expectations), it’s inevitable that some companies will be unable to accommodate every salary or wage increase request, especially if inflation remains at a comparable level for some time. Interestingly enough, 23% of employees surveyed by Grant Thornton LLP responded that if they didn’t receive a raise during their first request, they would “ask for more perks” instead.
Again, this is a scenario where – from an employer perspective – flexibility, adaptability, and transparency are paramount. The financial “bottom line” is just as important to employees as employers, but employers should not discount or fail to leverage achievable incentives, including all of the following:
- Showing receptivity to a remote or hybrid work configuration (for individual employees or company-wide). Remember that this promises to cut costs for many on-site employees, improve work-life balance, and foster a sense of autonomy and trust among your workforce.
- Addressing mental health concerns and stressors by instituting wellness programs
- Improving company culture with benefits upgrades or other non-wage-related incentives
- Holding candid conversations with employees during performance evaluations or raise requests. Ask questions about what can be done – financially and in terms of work configuration, culture, benefits, and opportunities for advancement. By demonstrating a willingness to adapt financially for the employee (within reason) while showing a sincere investment in their professional and personal wellbeing, these conversations can actually deepen organizational camaraderie.
- Finally, note that 31% of employees surveyed remarked that, if denied a raise, they would “revisit” a salary conversation within several months. This figure clearly suggests that many employees are cognizant of the ways inflation is placing strain on the organizations that employ them and remain open to short- or mid-term alternatives that might offer non-financial incentives until the preferred raise is available.
If you’d like some guidance as you work to navigate the impact of inflation and wage expectations on your business, look no further. We’re excited to offer a range of HR and recruiting solutions that can help you retain and attract the employees best suited to help your organization grow. Contact us today to start the conversation.
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