In a previous blog, we examined The Great Resignation and why it’s not only difficult for businesses to hire new workers, but retain the talent that’s currently on staff. Businesses are reeling from the mass, voluntary exodus of workers who are choosing to leave in search of better pay and benefits, work flexibility, a career change, or simply to stay home and care for family members.
High turnover seems to be everywhere—in every industry—and businesses are doing whatever they can to lure in workers by increasing wages and salaries, offering bonuses, and even guaranteeing remote work. With the Great Resignation driving up both turnover and salaries, how much should businesses allocate for recruiting and compensation budgets in 2022? How long will wage inflation be around? And how long will workers have the upper hand in the job market?
In this article, we’ll take a look at some recent statistics about wage inflation and the costs involved in recruiting and retention in today’s tight labor market. Discover why it’s important for your business to estimate the right budget now so you can hire the talent you need, minimize resignations, and increase retention.
The rising cost of recruiting, retention and compensation
Throughout the first three quarters of 2021, wages in the US have grown at the fastest pace in over 20 years. A new report from The Conference Board reveals how this rapid increase in wages will present challenges to businesses as they budget and strategize about recruitment, retention, and compensation not only in the near term, but likely over the next decade. While the report predicts that wage growth will slow in 2022 to about 2.5-3%, there are many signs that wage growth will pick back up again in 2023.
Consumer inflation outpacing wage increases
According to the Department of Labor’s Employment Cost Index, wages and salaries for civilian workers increased 4.2% for the 12-month period ending September 2021—and rose 4.6% in the same period for private industry workers. Even though US workers are bringing home bigger paychecks, they’re also paying more for goods and services. In fact, the latest Consumer Price Index (all items index) rose 6.2% for the 12-month period ending October, 2021 representing the largest 12-month increase since November 1990.
Inflation is emerging as a big concern and ongoing risk for employers in every industry. The Conference Board notes, “After being a non-issue in wage determination for several decades, strong inflation in 2021, and perhaps 2022…is likely to push wages higher.” If this issue persists, some analysts worry that it could lead to what economists call a wage-price spiral – where employees demand higher pay to keep up with the rising cost of living and companies pass on those labor costs to customers in a vicious cycle.
Why workers gained the upper hand in the job market
For the first time in at least 20 years, American workers have gained the upper hand in the job market, commanding higher pay, more benefits, and other perks like work flexibility. Data from the Department of Labor shows that with more jobs available than unemployed people, businesses must work harder to attract staff. Lower-paid workers have seen the biggest gains—in fact, pay rose for restaurant, bar, and hotel employees by 8.1% in the third quarter of 2021. Some experts attribute this wage increase to pandemic-related policy choices that were made to help workers during lockdowns and ensure the economy bounced back.
While millions of US workers have joined the Great Resignation wave, not all of them are simply looking for better wages. According to a survey conducted by LinkedIn, 74% said that the time spent at home during the pandemic caused them to rethink their current work situation. It gave many workers a chance to reexamine their career trajectory, how much time was devoted to work, and how much stress it caused them. As a result, some workers are quitting not just in search of higher pay, but greater work flexibility and other benefits.
A recent Mercer survey asked employers what they thought was driving labor shortages and higher than usual attrition. According to employers, 71% believe pay is driving retention challenges, 44% think it’s due to employee burnout, and 42% attributed turnover to career advancement issues. In the same survey, Mercer asked employers how they are responding to these challenges. Here were the top three initiatives:
71% said they are enhancing workplace flexibility
70% are reevaluating compensation and benefits
62% are investing in diversity, equity, and inclusion
Additionally, at least half of respondents indicated they were also evaluating talent sourcing strategies, wellbeing and mental health programs, and strategic workforce planning.
3 tips to estimate the right recruiting budget
To win the war for talent, it will be important to allocate ample budget for recruiting and retention initiatives in 2022 and beyond. Here are some tips to help you plan and estimate the right budget:
Determine your cost per hire. Understanding your cost per hire enables you to make more strategic decisions about where to invest in your recruiting process. This metric measures the costs associated with your hiring process including advertising, sourcing, referral bonuses, compliance, background checks, and onboarding. SHRM’s industry benchmark in 2017 was $4,425 per hire.
Conduct a turnover analysis. Is your business a victim of voluntary turnover? This is when employees leave on their own; it’s not always a bad thing, but it can be costly since it’s often unexpected. Determine if there are trends to the turnover; are they top performers? Are they leaving due to job dissatisfaction, a toxic work culture, or poor compensation? Knowing the why will help you determine what changes need to be made and where your investments should be directed.
Get serious about developing internal employees. If employees are frequently leaving for career advancement opportunities, it’s time to make investments in ongoing education, training, and promotion to keep top talent within your company. Support their growth and career goals and you won’t have to pay to replace them. HR Executive contributor Josh Bersin notes, “Don’t think about hiring as the only way to grow. While traditional hiring will never go away, sustainable growth will come from upskilling and redeploying people…and investing in programs that improve productivity, wellbeing and culture.”
Talent strategies for the Great Resignation
Asure provides solutions that help businesses like yours attract and retain the right talent to help your company grow. Asure’s solutions provide support for the entire employee lifecycle—from job application through employee experience. Our software helps you build and retain a great team that gets behind your vision and has the skills and the passion to take your business to the next level.