Controlling inflation: the role of companies and employees

Businesses and employees can’t raise interest rates like the Federal Reserve, adjust the money supply, or fix supply chain bottlenecks on their own, but they do have a way to fight inflation.

By working together, employers and employees can mitigate some of the inflationary pressures caused by the wage-price spiral. Simply put, when prices for housing, energy, food, and other goods rise, workers typically demand and get wage increases. The spiral continues to rise, and inflation results.

Unemployment hit a low of 3.6% last month in the United States and 3.5% in North Carolina, so demand for workers has been strong. But the stock market has fallen recently, some companies are laying off employers, and the worker dynamic that calls most of the shots may soon be over. The Federal Reserve raised short-term interest rates by half a point this week, which will likely cool the economy and lower inflation even further.

To pursue economic growth without adding to inflation, workers and management must cooperate on wages, hours, management, continuing education and other issues. These measures could result in reasonable wage growth, greater influence over management decisions and longer-term relationships without causing inflationary pressures.

Economist John Maynard Keynes argued that a hot economy raises prices more than wages because the former adjust more frequently than the latter. This could explain why employers are not increasing salaries enough, on average, to reach inflation levels of 8.5% in March 2022.

The strongest salary growth is currently attributed to the retail and leisure/hospitality sectors with vacancy rates of 8-10% according to the Brookings Institution think tank, translating into a turnover rate high and therefore re-hiring at higher wages adjusted for inflation.

However, industries with a more stable workforce will generally experience less wage growth (both nominal and real) to cover inflation.

Disgruntled workers are consequently quitting their jobs at record highs as the Great Resignation persists in pursuit of a better balance between wages or working life, while those in stable industries see their real wages fall.

So how do employers retain talent in stable and unstable sectors while controlling inflation? While many Americans appreciate direct cash income in their monthly checks, this country should train and educate more employees on the value of investing. This presents a huge opportunity for employers to introduce more investable option plans that complement standard compensation packages to not only educate their talent on asset strategies, but help them stave off inflation whatever the winds. economic opposites.

For companies that offer stock options, there should be a limited or no vesting period for these offers, giving employees immediate access to sell these assets when needed. For workers who simply prefer not to invest, employers may offer other incentives to accommodate employee families and lifestyles. For employees with young children, childcare can be provided by service providers under contract with the employer (similar to health insurance agreements). For those who prefer a better work-life balance, flexible working hours can be extended when virtual days adapt based on business demand or number of hours on site.

Employers can also incorporate dynamic paid time off models where employees can earn extra days through exceptional work and even “cash out” those days if they are unused at the end of the year. For those focused on retirement, matching plans can be made more attractive through higher percentage match rates, thereby reducing taxable income and increasing potential long-term returns upon plan acquisition.

These diverse models can extend to family members with educational opportunities to improve their skills through certificates or more formally by supporting bachelor’s or master’s degree pursuits. College courses, online technical courses, and workplace improvement seminars and courses should be treated as an investment in better educated and more productive employees.

We should galvanize the private sector by promoting these asset- and incentive-based compensation models with immediate vesting periods.

In addition to wages and opportunities for education and growth, employers need to better communicate the company’s mission and role in society.

A recent study by Deloitte notes that Generation Z, people born after 1997, have different views on employment. “While salary is the most important factor in deciding a job, Gen Z places less importance on salary than all other generations: if given the choice of taking a better paid but boring job by compared to more interesting but lower-paying work, Gen Z was fairly evenly split on the choice. To win the hearts of Gen Z, companies and employers will need to highlight their efforts to be good global citizens… Companies must demonstrate their commitment to a broader set of societal challenges such as sustainability, climate change and hunger.

Salaries are always important, but as the workforce evolves, companies need to be flexible, able to invest in the emotional and educational growth of their employees. These methods will strengthen the ties between management and workers, while mitigating the effects of inflation.

Mohamed A. Desoky is the Associate Dean of Academic Programs at Skema Business School in Raleigh, NC

About Andrew Estofan

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