Inflation’s Impact on the Post-Pandemic Labor Market

Inflation’s Impact on the Post-Pandemic Labor Market

As inflation continues to heat up—a new report from Goldman Sachs cautioned that rates may not cool off this year as many had hoped.  “The inflation picture has worsened this winter as we expected, and how much it will improve later this year is now in question,” Goldman Sachs economists wrote.

 

A measure of inflation that the Federal Reserve watches closely accelerated again in February, hitting a new 40-year high and speeding up on a monthly basis as food and energy prices climbed sharply. Now, nearly nine in 10 adults say they are at least somewhat concerned about inflation, according to a survey conducted recently by the online research firm Momentive for The New York Times. 

 

With the fear of inflation weighing on people’s view of their finances and the economy overall, only 14 percent of employed respondents in the survey said they had received a raise significant enough to keep up with inflation.

 

At the same time, Goldman Sachs noted the widest gap between available jobs and workers in postwar US history. “The one-two punch of high inflation expectations and a strong jobs market threaten to ignite a moderate wage-price spiral,” Goldman Sachs said, somewhat reversing its previous assessment that there is little risk of such a spiral.

 

While companies scramble to deal with increasing commodity prices, supply constraints and higher wages caused by labor shortages, a recent report by Harvard Business Review says that cutting expenses is a vital part of how companies can weather the storm.

Battling Inflation with Gig 

With labor shortages and ballooning labor costs, Harvard Business Review shares that shifting how work is done can have the greatest impact on the bottom line. “Companies that do this well use a clean-sheet mindset, which can help reset the way work is done. This approach forces companies to scrutinize both what activities are performed and how those activities are performed.”

 

As inflation looms, companies across industries are reexamining their work and determining what adds the most value, providing both cost savings and the opportunity to deploy dollars and scarce labor resources to what will help them grow, they noted.

 

HBR reported that as companies prepare for higher inflation in this new environment, they will need to make moves that not only cut costs but also build more scalable growth—positioning them to strategically reinvest in programs that deliver greater resilience. “By playing both offense and defense in a disruptive environment, they position themselves to outpace less-proactive competitors long after the volatility ends.”

Inflation Spurring Gig Economy Growth

At the start of 2022, 64% of the U.S. population was living paycheck to paycheck, up from 61% in December and just shy of the high of 65% in 2020, according to a Lending Club report.

 

Additional research conducted by The Conference Board reported that nearly a third of people who resigned from their jobs during the pandemic are getting paid at least 30% more in their new positions. However, with compensation weighing heavy on workers’ minds—62% say they are concerned their paychecks won’t keep pace with higher inflation.

 

A tipping point that is pushing more people into the gig economy. But it’s not because of money alone.

 

Although the survey included insights on remote work—there were several findings with implications for retail and grocery employers. In addition to outlining the trend of job shifts for higher compensation, The Conference Board found that flexibility is a growing priority for people in the labor market. Flexibility was identified by 71% of respondents as a top priority, driven by keen interest among Millennials and Gen X employees.

 

“The higher cost of living is spurring many individuals to supplement their incomes and use platforms to do so,” reported PYMNTS. “Flexibility is key in getting us to join the platform economy, to embrace gig work and to match new supply to demand—and inflation is what may keep us there.”