Economics is a science full of sad ironies, but one of the saddest and most ironic is this: At the individual level, the most obvious short-term remedy to inflation turns out to be a driver of it.
“There’s this discussion in economics of a ‘wage-price spiral,’” says BYU economics professor Christian vom Lehn. “Prices rise, and workers want wages higher to pay for the more expensive goods and services they want to consume. That pushes their wages higher. But if there are limited goods and services, that will just push the prices higher. And you get into a kind of spiral.”
In the near term, these demands for higher wages are relatively easy to meet. Consumers are paying more for goods and services, which means revenues are up.
“Inflation is great for business margins in raw accounting terms because now you’re selling your goods and services for a higher price,” vom Lehn says. “Margins are going to be responding to inflation too, and this is where the spiral can get out of hand.”
It only takes a few turns of the wage-price spiral before it becomes unsustainable, often forcing workers to look for higher-paying opportunities elsewhere.
“A business then has a number of choices they might want to make,” vom Lehn says. “They might say, ‘It’s too expensive to retain you, and so we’re not going to try and compete.’ Or the business might try to match what an outside opportunity might offer. Or, the business might try to compete in non-monetary compensation dimensions.”
Utah’s inflation rate is the third highest in the nation, primarily driven by surging home prices experiencing enormous buying pressure applied by the pandemic-fueled waves of coastal transplants that began arriving in earnest in 2020. But these new arrivals also impacted compensation trends, according to Robb Lifferth, co-founder of IsoTalent, one of the primary recruiting sources for high-growth firms along Utah’s tech corridor.
“Starting in the fall of 2020 in Utah, we saw a 10 percent increase in base salaries across the board, and that has since crept up to 15 percent,” Lifferth says. “At some point, the money runs out, and you have to decide where you’re going to spend your cash. And we’re seeing HR professionals get really creative on what they need to do to attract talent and retain talent.”
Lifferth says one particularly effective, non-monetary tactic for holding on to talent acknowledges the value of having advocates on the home front.
“On the retention side, you’re seeing a lot of enhanced benefits directed at winning over spouses. They’re combatting that call you get from recruiters offering more pay by wrapping benefits around the spouse’s needs, making them so enticing that it shuts down that conversation,” Lifferth says.
That’s precisely the approach Scott Allen takes as VP of human resources at Metasource.
“I don’t want to lose anybody. When we design benefits, we think of it from the perspective of the whole family, not just the employee,” Allen says. “We make sure that we’re communicating effectively with the spouse or significant other, who is also a consumer of the benefit that we’re offering, to meet them where they’re at and make sure they feel cared about.”
Allen finds his employees’ eroding spending power can be countered not just by increasing pay but also by helping them reduce expenses.
“We make discount programs available to employees. We also support those who decide to move to lower-cost markets,” Allen says, adding that Metasource relocation support includes legal counsel on home purchase contracts, personal leaves of absence during the move, and making accrued time off cash-outs available to help with things like utility deposits.
Von Lehn agrees that flexibility in location is key to competing during a tight labor market.