How Inflation Affects the Labor Market

October 9, 2022
5 min read

Inflation has been a hot topic throughout the year and that doesn’t seem likely to change anytime soon. A variety of conditions including faster wage growth, increased savings, increased consumer spending, shortage of goods, price-gouging, and service industry pressures as consumers shift spending from products to experiences post-pandemic are creating a perfect storm leading to inflation.

As an answer to rising inflation, the Fed raised interest rates to slow demand and tamp down wage and price growth. In an ideal world, higher interest rates will force companies to lower their prices and narrow their profits as supply and demand come back into balance. The uncertainty comes into play around how much Fed action will be needed to get inflation under control without slowing the job market too much and causing a recession.

The effects left behind from the events of 2020 and 2021 have added a level of unpredictability to economists’ predictions, making it harder to determine how long it will take to curb inflation. The longer inflation negatively impacts the economy, the more likely that a recession will occur, resulting in changes such as slower hiring, increased layoffs, slower industrial production, and a stalled housing market.


If inflation can’t be controlled within the next 6 months, the labor market will suffer – think layoffs, higher unemployment, slower hiring, fewer open jobs, and even more work for those currently overworked, stressed, and burnt out.

It’s important to note that the unemployment rate currently remains relatively low and job growth continues to remain robust based on lagging government statistics. However, consistent unpredictability around inflation, a looming recession, and overall economic uncertainty will undoubtedly impact unemployment and job growth.


Employers should find ways to operate as efficiently as possible. They should focus on keeping operation costs under control and managing the workforce through attrition. When employees leave employers should evaluate if the position needs to be replaced, repurposed, or outsourced.


If you’re considering a job change and actively interviewing, be sure to do a lot of research on the health of a company before accepting a new position. This will hopefully prevent you from making a haphazard job change and stave off the dreaded “last hired, first fired” situation that may surface during a recession. If you’re comfortable or at least fairly satisfied with your current position and company, it's wise to stay put until the economic uncertainty subsides. If you’re a risk taker, however, now could be a great time to land that dream job as competition may dwindle among your risk-averse peers.


No matter what the outlook of the economy, Next Level Benefits has a solution for all your HR needs. Give us a call today to discuss how our seasoned experts can take something off your plate.

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