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Adjusting to the Peak Inflation and Peak Labor Market

Updated: Oct 10, 2023

In our current economic market, we have had long-term prosperity, but we are plagued by rampant inflation and a tighter-than-tight labor market. Small business owners are challenged by increasing prices from suppliers, continuing good demand for their products or services, but shortages of willing and able employees to run the business. How do you get the labor you need?

The first answer is something that none of us want to hear... a recession. While you can’t control this yourself obviously, one sure fix for a tight labor market is a recession. Jobs become less plentiful, and consequently the labor market softens. Pay freezes, or even goes down, and the expectations for benefits soften as well. However, given that it is a lose-lose proposition for the business owner, no one wants to see a recession regardless of the inevitability.

So until the labor market does soften, how do you get the help you need? A few thoughts to help you win the war on talent:

  • Check ALL the boxes. When applicants have multiple options, it becomes even more important to be competitive with your job offers. Pay rates continue to matter, but extensive benefits gain a larger importance. Make sure your benefits are competitive, or better than competitive, than the other businesses competing for your same labor pool.

  • Check pay rates continuously. You raised pay last year... that was probably too long ago! In an ultra-competitive market, pay rates must continuously be judged versus the competition. You don’t necessarily have to pay the highest if you truly stand out in other areas, but you at least need to be close. Leaving pay rates stagnant means that your turnover increases.

  • Adjust your prices. Your own prices need to be adjusted to reflect higher costs as well. Large companies seem to have no problem adjusting prices, but small employers frequently are hesitant to do so. You should not let the fear of losing customers stop you from raising prices. You are a small business. If you make a mistake, it’s easy to lower them back to an acceptable level. However, you can’t reclaim the lost profit or lost costs if you keep them too low.

  • Adjust your expenses. When times are good, we as business owners frequently get relaxed about what expenses we decide are necessary. Meals and entertainment goes up, subscription services creep up, and even additional real estate may be utilized. Take a look at your own expenses during this time. While it’s vitally important to spend money where you need to, you can make this up by re-evaluating the other expenses that may not be as vital. Spend more here, spend less there.

These are just a few items to get you started thinking about solutions to your labor issues during this unprecedented time. Need to talk through some of this? Give us a call or shoot us an email. We are happy to help.

Mark Goldman



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