The staffing industry is buzzing with talk about the rise of inflation.
Inflation impacts every level of our economy, including interest rates, investments, and the price of goods. It has also contributed to The Great Resignation and employee shortages.
Understanding the impact of inflation on the staffing industry is crucial to maintaining a competitive edge in the market. TempWorks Account Manager Andre Maund brings you all the information you need to know about how inflation affects your staffing company, your customers, and your employees.
What is inflation, and why does it matter?
Inflation refers to an increase in price across goods and services within an economy. When prices go up, your purchasing power goes down, which means your dollar is worth less.
According to the Consumer Price Index, U.S. inflation has risen to 9.06%—the highest it’s been in 40 years. For comparison, the inflation rate was 1.8% in 2019.
How does this impact staffing agencies? With the larger corporations increasing wages, this is putting strain on small- to medium-sized employers. Read more below about the impact inflation and low wages can have on your staffing agency’s success.
The Relationship Between Inflation and Wages
While inflation has risen drastically, wages have not reflected the same percentage increases.
From 2010 to 2020, wages increased an average of 3.17%. This means that the current inflation rate of 9.06% is almost triple the average yearly wage increases. Even if you’ve seen employee wages grow, it hasn’t been enough to keep up with the rising price of housing, goods, and services.
Currently the federal minimum wage is set at $7.25 per hour, but the largest employers in the United States have started to increase their minimum wage. Larger companies such as CVS, Target, Walgreens, and many other employers have increased their minimum wage to at least $15 per hour. Large corporations are also increasing their presence in the workforce as they continue increase their number of workers.
Impact on Cost of Living
In response to inflation, the cost of living is also on the rise.
For a single person living the United States, a livable wage is considered to be $15.29 per hour. In locations with a higher cost of living, this number would be higher. According to Indeed, the average wage of an industrial worker is about $12 per hour, which would be considered underneath the average livable wage in the United States.
The MIT Living Wage Calculator allows you to view living wages based on county. For example, in Dakota County, MN, a living wage for a single person with no dependents is $16.96, while the minimum wage is only $10.33. This necessary living wage goes up to $33.71 with a dependent, which means a single parent could be making only 1/3 of the wages necessary to support their family.
This is important considering the shift in employee perceptions regarding work coined as The Great Resignation. The COVID-19 pandemic spurred labor shortages that have been felt in most industries. This cultural shift will not go away with unemployment benefits; most likely, we will continue to experience labor shortages until wages reflect the cost of living.
This is not the first time that the United States has experienced such a shift. Increasing wages has been an area of focus in certain periods of history where the United States economy was in a refractory state after struggling fiscally. In 1937, Franklin D. Roosevelt signed the Fair Labor Standards Act, which emphasized paying workers livable wages.
It’s even more important to raise wages today than it was in 1930s because the dollar has lost significant purchasing power since it was taken off the gold standard. For example, $70,000 in the year 2000 would equate to $116,589 in 2022. This means that the dollar was 60 percent stronger in terms of purchasing power in 2000 than it is today.
The impact of inflation on staffing agencies
While higher earners in the workforce may not be as impacted by inflation on a day-to-day basis, most workers earning minimum wage (or slightly above) have experienced significant hardship during this time.
The increase in inflation has a particular impact on people in the workforce who are utilizing temporary staffing services for employment.
As prices rise, your employees’ wages don’t go as far. This can impact your company in the following ways:
- Decreased retention: Employees leave positions more often as they find higher-paying jobs with big corporations that have increased wages, such as Target and Amazon.
- Reduction in the candidate pool: When your wages are not meeting the needs of your candidates, they are less likely to apply.
- Difficulty staying competitive: Enterprise corporations are increasing their wages to address the impact of inflation and remain competitive in the marketplace. If small and mid-sized businesses are to remain competitive and maintain a sufficient talent pool, they will need to follow the lead of these larger businesses.
- Decreased customer satisfaction: Your relationship with your customer improves when you can meet their staffing needs and support them with reliable, talented workers. When you have significant turnover in temporary staffing employees or can’t fill a position, your relationship with your customer is impacted.
- Possible decrease in revenue: In order for a staffing agency to make money, you need to be able to fill positions for your customers. If you don’t have the candidate pool or need to keep refilling a position, you are missing out on valuable revenue.
Why your staffing company should consider wage increases for temporary employees
When employers increase wages, they gain a competitive advantage and grow their candidate pools. Employers paying higher wages may actually save costs in the long run as they see higher retention rates and spend less administrative time recruiting, hiring, onboarding, and training new employees.
The United States has already seen its largest employers see success in offering higher wages. It is time small to medium sized employers to follow suit.