Taming inflation: The role of businesses and employees

Businesses and employees can’t raise interest rates like the Federal Reserve, adjust the supply of money or solve supply chain bottlenecks by themselves, but they do possess one method to help fight inflation.

Working together, employers and employees can mitigate some of the inflationary pressure caused by the wage-price spiral. Simply stated, when prices for housing, energy, food and other goods rise, workers ask for and are usually granted, salary increases. The spiral continues to rise, and inflation results.

Unemployment hit a low of 3.6 percent last month in the U.S., and 3.5 percent in North Carolina, so demand for workers has been strong. But the stock market has dropped recently, some companies are laying off employers, and the dynamic of workers calling most of the shots may soon be over. The Federal Reserve raised short-term interest rates by half a point this week, which will probably cool off the economy and lower inflation even more.

To continue economic growth without adding to inflationary, labor and management must cooperate on wages, scheduling, management, continuing education and other issues. These measures could result in reasonable wage growth, more say in management decisions and longer-term relationships without causing inflationary pressure.

Economist John Maynard Keynes argued that a hot economy raises prices more than wages because the former adjusts more frequently than the latter. This might explain why employers are not increasing wages adequately, on average, to meet inflationary levels at 8.5 percent as of March 2022.

The highest wage growth currently is attributed to both the retail and leisure/hospitality sectors with vacancy rates of 8 to 10 percent according to the Brookings Institution think tank, translating to high turnover, and thus re-hiring at higher inflation-adjusted wages.

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

Dissatisfied workers are consequently quitting their jobs at record highs as the Great Resignation persists in the pursuit of a better wage or work-life balance, while those in stable industries are watching their real wages decline.

So, how do employers retain talent in stable and unstable industries while keeping inflation in check? While many Americans appreciate direct cash income in their monthly checks, this country should train and educate more employees on the value of investment. This poses an immense opportunity for employers to present more investable option plans that complement standard compensation packages to not only educate their talent on asset strategies but help them stave off inflation regardless of economic headwinds.

For companies that offer stock options, there should be limited to no vested period for these offers, providing employees immediate access to sell these assets when needed. For those workers who simply prefer not to invest, employers can offer other incentives to consider employees’ families and lifestyles. For employees with young children, daycare can be provided through contracted service providers with the employer (similar to health insurance arrangements). For those who prefer a better work-life balance, flexible work schedules can be extended where virtual days adjust based on business demand or number of hours onsite.

Employers can also incorporate dynamic paid-time-off models where employees can earn additional days through exceptional work and even “cash” in those days if unused at the end of the year. For those focused on retirement, matching plans can be made more appealing through increased percent-match rates, thereby reducing taxable income and increasing long-term potential returns upon vesting of the plan.

These diversified models can extend to family members with educational opportunities for upskilling through certificates or more formally through supporting bachelor or master’s degree pursuits. University classes, online technical courses and workplace improvement seminars and lessons 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.

Besides wages and opportunities for education and growth, employers must do a better job of communicating a company’s mission and role in society.

A recent study by Deloitte notes that Gen Z, those born from 1997 onward, possess different views about employment. “While salary is the most important factor in deciding on a job, Generation Z values salary less than every other generation: If given the choice of accepting a better-paying but boring job versus work that was more interesting but didn’t pay as well, Gen Z was fairly evenly split over the choice. To win the hearts of Generation 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.”

Wages are still important, but as the workforce evolves, companies must be flexible, able to invest in the emotional and educational growth of their employees. These methods will strengthen the bonds between management and labor, while mitigating the effects of inflation.

Mohamed A. Desoky is the associate dean of academic programs at the Skema Business School in Raleigh, N.C.