The Unit­ed States, like some oth­er coun­tries around the world, includ­ing the Unit­ed King­dom and Chi­na, are fac­ing an infla­tion cri­sis in this post-pan­dem­ic era. Infla­tion has great influ­ence on Human Resources because it can cause the need for wage stag­na­tion and bud­get cuts. The biggest dis­ap­point­ment dur­ing times of high infla­tion is the pos­si­bil­i­ty of lay­offs.

First, HR pro­fes­sion­als should ful­ly grasp infla­tion, which is the gen­er­al rise in the prices of all con­sumer goods and ser­vices. The Unit­ed States turns to the Con­sumer Price Index (CPI), which is mea­sured by the U.S. Bureau of Labor Sta­tis­tics, to gauge infla­tion, accord­ing to the Guardian. In fact, the Unit­ed States is expe­ri­enc­ing a 40-year high in infla­tion. Prices rose 8.5% year over year in March 2022.

Understand Inflation

There is no one root cause for infla­tion. Over the past few years, the world econ­o­my expe­ri­enced a per­fect storm that includ­ed a once-in-a-cen­tu­ry pan­dem­ic and nec­es­sary stim­u­lus, con­tin­u­ous lock­downs in Chi­na that have dam­aged sup­ply chains, and a war in Europe between Ukraine and Rus­sia that costs mon­ey to fight but is also hurt­ing the world’s food and gas supplies.

In the Unit­ed States, HR lead­ers are fac­ing these chal­lenges like every­one else. But they have one oth­er issue with which to con­tend: the Great Res­ig­na­tion. (Some refer to it as the Great Reshuf­fle.) Peo­ple are con­tin­u­ing to leave their jobs to seek bet­ter employ­ee expe­ri­ences, ben­e­fits, and com­pen­sa­tion pack­ages. In fact, 4.4 mil­lion peo­ple vol­un­tar­i­ly quit, and com­pa­nies doled out a record low 1.2 mil­lion lay­offs in April 2022, accord­ing to CNBC. In addi­tion, employ­ers had 11.4 mil­lion job openings.

Some experts are say­ing it is the tight­est job mar­ket on record. What seems like good news for the econ­o­my can actu­al­ly mean that the coun­try is head­ed for reces­sion. If peo­ple have well-pay­ing jobs and mon­ey to spend, demand goes up and so do prices. When this hap­pens and sup­ply is short, infla­tion sky­rock­ets. Even­tu­al­ly, wages can not keep up with infla­tion, and peo­ple start cut­ting back on spend­ing. Then, reces­sion can begin.

Obvi­ous­ly, if the econ­o­my enters reces­sion, com­pa­nies will be tight­en­ing their belts. As a result, they may have to cut down on labor costs and do more with less. This often leads to lay­offs and oth­er bud­get cuts.

What’s Happening Now?

While some sec­tors, such as tourism, are bounc­ing back after the pan­dem­ic, oth­ers are slow­ing down. All those tech com­pa­nies that earned boosts dur­ing the lock­downs saw drops in sales. Tech­nol­o­gy com­pa­nies are already expe­ri­enc­ing some hic­cups in the job mar­ket. Uber, Microsoft, Twit­ter, Way­fair, Snap, and Meta (par­ent com­pa­ny of Face­book) are either slow­ing down hir­ing or putting hir­ing freezes in place. Net­flix, Pelo­ton, and Car­vana laid off employees.

Still, these are the excep­tions and not the rule. Most com­pa­nies are still fac­ing a short­age of labor, and unem­ploy­ment remains his­tor­i­cal­ly low. Job can­di­dates and employ­ees have all the lever­age despite con­cerns about a loom­ing recession.

The Consequences

How­ev­er, there are some signs that the tide may turn. First, the job mar­ket has to cool, which means few­er jobs can be avail­able, for infla­tion to go down. Full employ­ment, when every­one who wants a job has one, will make infla­tion rise. At some point, espe­cial­ly with gas and gro­ceries cost­ing as much as they do, indi­vid­u­als will not be able to walk away from jobs as eas­i­ly. In addi­tion, the com­pa­nies will get lean­er and do more with less, so they will stop hir­ing as much.

Some orga­ni­za­tions have pumped up their hir­ing to meet the post-pan­dem­ic con­sumer demand, and they may then have to lay off their employ­ees in response to a down­turn in the econ­o­my. At that point, there may be anoth­er shift that gives lever­age to the employ­er again. The ques­tion remains whether the trans­for­ma­tion in treat­ment of employ­ees, com­pen­sa­tion and ben­e­fits, and work-life bal­ance ini­tia­tives will endure in a recession.

If HR pro­fes­sion­als must lay off their employ­ees, they should have a plan and be kind. Those who have laid off peo­ple via Zoom or with harsh words have lived to regret it in the age of social media, when peo­ple share every­thing. Unfor­tu­nate­ly, lay­offs hap­pen. It’s how HR lead­ers han­dle them that sep­a­rates the pro­fes­sion­als from the amateurs.

By Francesca Di Meglio

Orig­i­nal­ly post­ed on HR Exchange Network