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If you’re scratching your head about what’s going on in the world, you’re in good company. Record numbers of people are quitting their jobs, and at the same time prices are going through the roof. Entry-level workers say they can’t pay their bills because their employer doesn’t pay a “living wage,” but top-level earners are also experiencing pain at the pump and sticker shock pretty much everywhere else.

Hiring managers can’t find enough workers and job seekers are looking for more money and better opportunities. The Great Resignation and the tight labor market both affect rising inflation.

The Connection Between Unemployment and Wages

When unemployment is high, there are plenty of workers. In fact, there are more jobless people looking for work than there are openings. Employers mostly keep all their positions filled.

People who have a job know that if they complain, ask for raises too often or don’t do what their boss asks, there are plenty of others who would be happy to take their spot. This means employers aren’t motivated to offer extra pay or benefits to lure workers away from the competition, so wages don’t increase very quickly.

The opposite is also true. When unemployment is low, there aren’t as many people looking for work. If a business expands, has workers age out or move up or loses staff to a competitor, they might have trouble finding someone to fill that spot. Demand is high, and employers that can afford to offer higher pay and perks attract top talent. Those who can’t are either left scraping the bottom of the labor market barrel or leaving the position unfilled.

Unemployment rates affect pay increases. To put it simply:

High unemployment = Slow wage growth

Low unemployment = Rapidly raising wages

When Labor Costs More

Currently, unemployment is low, and workers are looking for the very best offer. Businesses that say, “It’s not about the size of your wallet but the size of your heart” will be speaking to an empty room.

However, when employers offer higher pay and add perks like childcare reimbursement, gym memberships, tuition reimbursement, adoption assistance, pet insurance and onsite meals, it cuts deep into profit margins. That money must come from somewhere.

Most business owners increase the cost of goods or services as the cost of labor goes up. As households pay higher prices on those goods and services, paychecks don’t go as far.

Some Employers Reducing Jobs

Some companies can’t find workers at a price they can afford. If they want to stay in business, they can either ask existing employees to do more or look for ways to bridge the gaps.

Employers who just pile more responsibility on remaining workers sometimes find that isn’t a good long-term solution. Workers burn out, disengage and jump ship, exacerbating the labor shortage.

To bridge the gap, many organizations are investing in tools to make the workload easier. Investing in artificial intelligence, automation, customer self-serve options and other technology allows some businesses to reduce the number of employees they must keep on staff.

Employers are also hiring gig economy workers to keep costs down. Online platforms put companies in touch with freelancers, some of whom live places where cost of living and wages are lower. They’ll work for less, and companies don’t have to pay expensive benefits like healthcare. They can eliminate full-time positions permanently.

But Wait, There’s More

Usually, inflation happens slowly. Things haven’t been proceeding as usual the past few years. The Covid-19 pandemic had most of the globe sitting at home asking what really mattered if their time on earth was limited. FOMO and YOLO sentiments simmered.

Manufacturers were shut down so nothing was manufactured. Shipping companies weren’t shipping. And suddenly most adults received substantial stimulus checks.

The supply chain developed massively complicated kinks that still haven’t been worked out. Demand skyrocketed, and people were willing to pay more to get what they wanted. There’s still a shortage of automobiles, houses, grocery items and other things we used to take for granted. Low supply drove up prices at the same time wages were going up because of high employee demand.

Because everything costs more, the American worker doesn’t just feel like he or she would like a bigger paycheck. To maintain the same standard of living, more money is actually necessary. But if employers keep raising wages, prices keep going up and the cycle continues.

Jobs Near Tyler Texas

Whether you’re looking for a new career or trying to find qualified candidates, we’re here to help. For job seekers, we take a personal approach. We sit down with each candidate to truly understand what they’re looking for and what they have to offer. We also get to know employers to make sure we’re sending the perfect match. If you’d like to know more, fill out our contact form or call (903)561-2996.