How inflation is affecting workforce planning, and how can companies prepare for it
With inflation reaching a 40-year record high at 8.6%, experts in all industries continue to dissect its effects on their respective products or services. From the rising costs at the grocery store and the price at the pump to high rent vs. high mortgage rates, inflation has permeated all areas of our daily lives for the foreseeable future. The effect of inflation on the job market is no exception. Will it slow hiring down? Some experts say it’s happening, and in the tech sector, some companies have already implemented changes and cutbacks. However, the full effect of what inflation will do to hiring, specifically tech hiring and particularly throughout the staffing industry, remains to be seen (as we watch from the edge of our seats.)
Tech Hiring Slowdown: Is it really inflation, or are we just seeing a natural leveling off?
The tech job market has been projected to increase by 13% from 2020 to 2030, according to BLS statistics released in April 2022, just a month after we saw record tech hiring in a post-pandemic market. That’s nothing new, considering projected employment for the tech sector has been on an upswing for years. Even the depths of the pandemic itself didn’t necessarily slow it. Despite the initial critical impact on all employment in the spring and summer of 2020, the need for technology professionals increased tremendously in a compressed timeframe to meet the demands of companies across the globe who needed to ramp up their digital offerings – and ramp up fast – to remain operational (and relevant).
Since then, almost all jobs have been recovered in technology, and then some. Think about the practical, tangible changes we witnessed – online ordering, delivery service apps, online meeting tools, even new health apps – we had been using them already, but never to the degree we started to – and the tech professionals who build and fine-tune those tools couldn’t get placed fast enough in those roles. Fast forward to today, and the need hasn’t subsided. We are still in the throes of a talent shortage that seems never to end; just the sense of immediacy and urgency may have softened (a bit).
We could chalk all this current upheaval to a simple explanation of “we grew too fast.” Of course, when companies who measure themselves by the index, and 1 out of every three headlines screams INFLATION, DISASTER, RECESSION, CATASTROPHE, on the one hand, the natural inclination is to adjust (or sometimes over-adjust), leading to decisions for controlled layoffs and hiring freezes. On the other hand, you have a different school of thought that is cautious but somewhat confident that while inflation is undoubtedly affecting the job market and seen as driving us towards a down economy, we have methods to mitigate the effects. We just might be “OK.”
Truthfully? We don’t know yet. But as staffing experts in the industry, we can make sure we prepare.
Go the Gig Route
“Firms aren’t going to slow down hiring; they’re going to change how 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.
That sounds like welcome news to the staffing industry and the consultants they employ. Practically, it makes sense. With wages becoming too much to bear due to inflation pressures, companies could undoubtedly respond with cuts to hiring. Santangelo continues that might not happen if companies adopt a consultant work model. Consultants don’t require the same benefits packages from companies, thus saving costs on the labor that they still need. Yes, some staffing firms offer consultant-based benefits, but we are talking about the hiring organization and their need to get people in the door at reduced costs.
The (not-so) Great Resignation contributes to inflation and gives way to the Talent Revolution.
In this Chicago Fed Letter, we construct a new and more comprehensive measure of labor market slack (following recent work in Faccini and Melosi, 2021) that takes into account the effects of on-the-job search (search by employed workers) on wage competition and inflation in addition to the role of unemployment. By labor market slack, we mean an indicator of the inflationary pressures coming from the labor market. Using this novel measure of labor market slack, we find that the recent brisk surge in the propensity to search on the job has contributed to rising inflation by around one percentage point during most of 2021.
If there was ever a perfect storm of events creating a cloud of uncertainty, it’s what we have experienced in the last two years. And the Great Resignation (aka the Great Reshuffle, the Great Reset) for all of the issues it has caused is also now thought by some experts to be a contributing factor to inflation. According to experts, workers who engaged in job-to-job mobility, looking for their next best opportunity, increased wage competition, adding a 1% increase to the already high inflation rate. This has left companies scrambling and still trying to play catch up.
The solution: figure out a strategy to minimize the attrition, which can stabilize compensation. It’s easier said than done, but it underscores the importance of having a trusted workforce solutions advisor that can assist companies in building their talent acquisition and retention strategies to combat this phenomenon. An expert in contingent labor will also prove to be a valuable resource.
Future of Work expert, Chris Dwyer, of Ardent Partners noted in a recent podcast that the Great Resignation has opened the floodgates for a renewed reliance on the contingent workforce, reminiscent of its ascendance following 2008’s Great Recession. He shares that even though businesses are having trouble finding the people they need, they still have to get work done, so the extended workforce solution and providers are going to shine to fill those roles and also be able to provide the technology that clients can take advantage of to build a sustainable workforce strategy.
Using a contingent workforce model often leads to streamlining costs, a step to slowing down the inflationary squeeze added to by the Great Resignation in the first place.
Plan for the Rainy Day: Invest in Employer Branding and the Candidate Experience
Increasing wages in some instances might be the only viable solution to attracting and retaining a workforce against rising inflation. But it shouldn’t be done in a vacuum. HR leader Josh Bersin notes we need to get back to ensure we are building the ‘right workforce,’ which comes with investing in employer branding and elevating the candidate experience. In some cases, it is the response to the hiring practice of, as he puts it, “get big fast” that some tech companies engaged in. Now those companies are faced with an exercise in company reflection to get back on course.
“…you have to carefully refine, redefine, and communicate your employment brand. And I don’t mean your logo or tagline. What does your company do and why? Why should a high-value job seeker or college grad select your company to join? And are you ready to pay a competitive wage in this inflationary economy?
These issues are often called “the Deal” – what you offer to job seekers. And you have to look at it regularly. Companies like Cisco, Meta, Microsoft, and Salesforce and non-tech companies like Moderna, Nestle, and others are all raising wages. And they’re not just doing this to keep up – they want and expect ‘the best candidate’ to apply.”
Putting in the work to continually re-evaluate and manage your message and employee value proposition puts companies in the best position to attract talent that wants to work there instead of choosing the highest bidder. Creating a culture where they stay reduces turnover costs and allows for progressive, incremental pay increases that can mitigate drastic inflation effects.
Manage against wage inflation with pay reviews, transparency, and other benefits to offset costs.
Let’s be honest: there will be companies that can’t compete with increased wages. Gartner notes that evaluating your pay ranges regularly can help companies create a realistic outlook of what’s possible. Routinely comparing pay scales to what the market will genuinely bear is a good exercise in knowing what the actual limits are. Pay transparency comes into play. Talent may think they know the rates, but if we engage in salary disclosure, they’ll actually know, and maybe they’ll realize the difference might not be too far off anyway.
This is then how a company, particularly a smaller one, might be able to compete. Additionally, offsetting health care costs, increasing the range of hires from lower-cost geographies, and offering flexible work environments can translate to dollars saved for the company, and money in the pockets of employees.
Turn over every rock to create a stable and sustainable staffing and hiring strategy amidst inflation.
The effects of inflation on staffing are wide-reaching yet still centered upon wages and stretching that almighty dollar. With each day comes new warnings from economic leaders about what lies ahead. Just as companies were upping the ante on salary offers and tech professionals were making record wages, news is now emerging, showing a trend of those top salaries declining, even though hiring will remain strong. As economic cycles go, we don’t necessarily know what is entirely in store. Still, we can ensure that innovation never stops, placing tech professionals in a better position to weather the storm. As staffing experts, we must be ready to help navigate and steer the ship through for our valued clients and consultants.
As you prepare your talent strategy amidst the current job market and economic conditions, working with a tech staffing expert can help streamline your hiring efforts, leading to stabilized costs, reduced time-to-fill and the right hires. Contact SSi today to discuss your staffing goals.