How Is Inflation Affecting the Labor Market?

October 18, 2022

6 Min Read

A woman holding a receipt and thinking about the inflation affecting the labor market

Inflation is universally seen as a bad thing. The more a currency gets inflated, the less reliable it is. And if inflation gets out of hand, it can quickly spiral into hyperinflation, making money worthless (for historical examples, you can look at Hungary and Germany). But there is no need to panic or plan doomsday scenarios. There are ways in which you can handle the ongoing inflation and ride through it without much stress. To help you understand what is going on, we will elaborate on the inflation affecting the labor market and how you can prepare for it.

Inflation affecting the labor market – what you ought to know

At first glance, inflation might seem like a hungry monster that is about to destroy our economy. But, while it will have a notable effect, inflation will by no means destroy anything. Regardless of how it gets there or how long it lasts, people will require products and services. And they will have to pay for those products and services somehow. So, instead of worrying about the future, it is vital to educate yourself about the financial crisis and understand how the labor market adapts to inflation.

Inflation leads to less stability

A large part of our economy is based on predictability and risk management. As you can imagine, there are countless businesses out there that took out loans to function. And there are even more people that took out loans to buy homes. All these loans are based on the assumption that they will be paid off at some point. But the worse the inflation gets, the less likely this is.

The less valuable money becomes, the harder it can be for people to pay off their loans. Banks are well aware of this, which is why risk management has become their primary corner. Inflation is seen as an overall lack of stability as it is impossible to estimate how long it will last or how bad it will get.

Less stability leads to labor market changes

The fact that there is less economic stability has a profound effect on the labor market. The first way in which this manifests is that people start looking for more gig jobs, and employers start offering more gig jobs. From the perspective of employees, they don’t want to be stuck with the same wage or in the same position. Doing gigs is riskier, but it gives you more freedom to maneuver. The lack of economic stability essentially means that no job is “safe.” Therefore, most settle on one that will give them the necessary benefits and then look for gigs that will actually bring in regular revenue.

From the perspective of employees, gigs are a clear choice for both financial and risk management reasons. Consumer Opinion advises that from an economic standpoint, it is easier to pay for gig work and avoid having to pay for health insurance, retirement funds, etc. When it comes to risk management, it is far easier to manage your costs if you have to pay workers individually. If you find a gig worker that suits you, you can have a long-lasting partnership. But, if you come at odds due to finances, you can easily find a replacement.

Potential recession

A recession is the common result of inflation. Namely, to tackle the aforementioned lack of stability, people tend to lower their spending and forgo risky investments. As such, the economy tends to slow down until things are more stable. During this period of recession, people are still going to need services and products. Therefore, while certain luxury jobs may close down, the necessary shops and services will stay.

How to tackle inflation

Preparing for and tackling inflation is a bit like preparing for a storm. While there are no guaranteed ways to make your job or company recession-proof, there are ways you can prepare for what’s to come. Keep in mind that this is not the first, nor will it be, the last inflation we experience. And there is a lot you can learn from past examples that might aid you.

Planning finances and monitoring the situation

Having your finances in order is one of the best ways to protect yourself from the unwanted effects of inflation. First off, you want to clear off much debt as you can. Unless you have fixed rates and clear clauses in your contract, you really want to ensure that you don’t owe money to anyone. Know that a single, poorly managed loan can eat up your savings like nothing.

Secondly, you want to ensure that no one owns you anything. This is especially important for companies where getting and giving loans to other businesses is considered normal. It would be best if you avoided any payment plans that are not here and now. The last thing you want is for someone to go bankrupt while owning your money. So, collect as much as you can, and don’t give out any more loans.

Looking for tax relief

The next thing to do is to educate yourself on tax relief. Now, more than ever, it is essential to minimize your expenses and hold tight. Until you are well-versed in the local economy and inflation trends, you will not be able to make an intelligent investment. So, try to minimize your overall expenses and see if there are any tax relief options you can look for. If this sounds like too much trouble, let experts do it for you. You may even learn a few things from them regarding the incoming recession.

Job hunt during inflation

Finally, if you are in a situation where you need to look for a job, it is vital that you understand the ongoing situation. Besides learning about the inflation affecting the labor market, you need to learn negotiation skills and focus on gig jobs. You must also understand how inflation affects your industry and whether you should expect layoffs. Depending on your local economy, you might need to relocate or look for online jobs.