How Will Inflation Affect the Job Market?

From mom-and-pop shops to large corporations, companies of all shapes and sizes are not immune to the effects of inflation. But how will inflation actually affect the job market? Employers are having to find ways to cut costs to turn a profit, while workers are asking for higher pay to combat the rising cost of living.

We consulted Mon ster’s Economist Giacomo Santangelo to provide insight into how high inflation will impact compensation, jobs, and more in the months ahead. Simply put, he says, “When unemployment is high, inflation is low. The problem that this creates is that in order to fight inflation, unemployment has to go up.” Here’s what you need to know.

How Inflation May Affect Hiring

Just because unemployment is expected to increase doesn’t necessarily mean that hiring will decrease. Santangelo says, “Firms aren’t going to slow down hiring; they’re going to change the way they hire.” He expects employers to move away from the traditional idea of hiring one full-time worker to perform a job and instead will seek to hire multiple part-time, contract, or “gig” workers as a cost-saving measure.

Hiring these types of workers means companies won’t be required to pay for expensive benefits like healthcare. Not to mention, companies can usually bring them in at a cheaper rate than a full-time employee.

Despite the ongoing labor shortages, research shows that the barriers for companies breaking into the gig economy could be minimal. In fact, a new survey found that workers are already moving in this direction as a way to make up for a lack of pay. According to the survey, 85% of workers have increased or plan to increase their amount of gig work in the past six months, with 58% citing inflation as the reason behind this change.

How to Adjust Salary for Inflation

Given high inflation, it’s not surprising that workers are asking for more money to account for the greater cost of living. Data from the Bureau of Labor Statistics’ monthly jobs report shows that wages have increased by 5.6% over the past 12 months, while prices have increased by 7.9%. You can do the math here.

While many employers are likely reaching their limits in terms of how much more they can pay workers, Santangelo says they will have to address these concerns on a case by case basis. For instance, a bartender’s hourly rate is likely going to be a different conversation than one regarding a vice president’s annual take-home. But, Santangelo says, “The commonality between those two individuals is the question of, ‘What exactly is my bargaining power?’”

For candidates, Monster’s Future of Work report showed that “financial compensation beyond salary” and “fair wages” are most important to job seekers right now. Employers wanting to hold onto good employees will need to get creative if they don’t have the budget for the typical raise percentage.

Looking Ahead: Will Inflation Create a Recession?

Fears of a recession are rising amid inflation with reports showing that consumers are already cutting back on spending. Santangelo says, “Historically, whenever inflation is as bad as it is right now—which it was back in the late 1970s—the way that the government fights inflation is by plugging the economy into a recession. That is going to happen.”

Fortunately, there are steps companies can take to insulate themselves for when the economy goes south. From investing in marketing to prioritizing customer service, employers should brace themselves for what appears to be the inevitable.

Stay on Top of Labor Market Trends

Monster aims to provide employers with the insight needed to move forward. As you plan your hiring strategy over the next month, check out Monster Intelligence for a deeper dive into data and labor market trends and what it will mean for your business.