Mid-size companies already say the labor shortage is their biggest issue, facing mounting pressure to raise wages, alleviate cost of living pain, provide flexibility, increase benefits and add training as options.
Now, rising gas prices and inflation add additional stress on wages. If you have growth plans, you can’t afford not to have the strongest possible team.
Let’s look at the latest statistics:
Unemployment remains at historic lows. The unemployment rate is 3.6% in May 2022. This is the lowest rate in the past 20 years — with the exception of February 2020’s 3.5%, which was the month prior to the pandemic starting.
Higher labor costs. Compensation costs rose 1.4% from December 2021 to March 2022, and 4.5% year over year ending March 2022.
Energy driving inflation. The inflation rate was 8.6% in May 2022, the highest 12-month increase in prices since December 1981. The 2021 rate was 7%, compared to 1.4% in 2020. The primary drivers of inflation are energy costs and transportation costs. These include electricity, gasoline, fuel oil and vehicles.
Looking forward, the Congressional Budget Office estimates a 3.1% real GDP growth in 2022; 2.2% in 2023, and 1.5% in 2024. Inflation is expected to be tamed to about 4.7% coming out of 2022, 3.6% in 2023 and 3.8% in 2024 — a little ahead of recent years, but not horrific. Unemployment is expected to remain in the 20-year-low category of around 3.7% through 2024.
Bottom line for your business:
- The economy is expected to grow
- Businesses will need labor to meet demand
- Unemployment will remain low, meaning businesses will need to compete for talent
- Labor costs are already rising slowly
- Inflation is driving up costs, primarily in energy and energy-related options
Workers will endure higher livings costs in the next year. Building your team will require you to find ways to alleviate that strain while rewarding top talent.
Here are three suggestions to compete in this market:
- Flexibility is your first option. High fuel and transportation costs means work-at-home and flexible working arrangements are at a premium. If that’s not an option, you can encourage traditional solutions such as carpooling, mass transportation (possibly offering vouchers), and flexible in-office work hours to encourage commute times that do not hit the heart of rush hour. Key: If you can offer some relief from travel costs, you’ll reduce pressure on your team.
- Compensation packages need to reward top talent. There’s going to be pressure to retain top talent. You’ll need line-of-sight to justify how competitive you can be — and clearly state to your team your expectations for performance. Also, clearly communicate the full value of the benefits package they receive to indicate total compensation.
- Training is always a strong option. Companies that invest in their people will build stronger, more loyal teams. There are tremendous online training opportunities for staff to build and expand their skill sets — while giving your company additional deductions for business expenses.
A rule of thumb is compensation is determined by three equally important factors: individual performance, company performance and labor market itself.
The key for keeping costs down is to find ways to work directly with your team, building their skills and offering compensation that fits your budget and company performance.