Wage Inflation During High Unemployment

wage inflation

Typically, the supply and demand principle dictates that when the supply of labor in the market goes up, wage inflation rates go down.

But we’re living in times that are anything but typical.

Despite operating in an economy that has lost more than 20 million jobs and gained just a portion of them back, employers across the country are reporting talent shortages.

Why aren’t more people looking for jobs?

Right now, several factors are keeping people out of the workforce:

  1. Many are currently furloughed, waiting to be called back to work.
  2. Some are afraid to return to work because of the pandemic.
  3. The CARES Act and Pandemic Unemployment Assistance have been supplementing incomes.
  4. Some parents of school-age children can’t go back to work because of virtual learning.

Suppressed labor force participation rates are fueling talent shortages, which – you guessed it – are driving wages up, even as unemployment levels remain high.

So, how can you find qualified people your business needs?

As the gears of our economy continue cranking up, job creation will increase (i.e., job seekers will have even more options). As long as the four factors above are still in play, your business must be prepared to pay more to attract high-quality candidates.

While that may be a tough pill to swallow, there’s a silver lining here:


Paying competitive wages can improve your bottom-line results – and help you rebound faster.

In PrideStaff’s whitepaper, “The High Cost of a Low Pay Rate,” we illustrate the financial benefits of paying at (or above) market pay rates:

  • Fairly paid employees are happier and experience less job stress – both  improve job performance.
  • Paying competitive wages increases employee retention – preventing knowledge loss and sparing you the costs of continually refilling roles.
  • Offering higher wages provides access to a stronger talent pool. Increased access to better talent allows you to accelerate hiring, reduce vacancy costs, and offer open positions to current employees.

In the long run, employees who are paid fairly are more productive, efficient, engaged, and loyal – all of which build a healthier bottom line for you.


Is it time to get more competitive with your pay?

If you think your pay rates are costing you talent or leading to high turnover, or if you want to attract higher-quality candidates, check out our High Cost of a Low Pay Rate whitepaper. Then, connect with one of our local workforce and hiring experts today to get started.