COVID-19 brought on historic unemployment in early 2020, with more than 20 million Americans losing their jobs in the first nine weeks of the pandemic. The upheaval initially worked in favor of employers, who suddenly had a glut of talent to choose from when filling positions.
Now, as the pandemic inches toward its third winter, the tables have turned. Unemployment in the United States has dropped, employers have trouble finding the talent they need, and workers have new bargaining power when hunting for new jobs or negotiating for pay raises. As a result, wages are growing at the fastest rate since the 1990s.
Why the sudden shift? And how can your company retain and attract talent seeking higher compensation than ever? Read on to find out why wages are rising and four ways your company can keep up.
Why U.S. Wages Are Increasing
While both low-wage and high-wage professionals are now positioned to demand higher pay, the circumstances differ for both.
When the pandemic began in Q1 2020, many low-wage workers—such as those in restaurants, retail stores, hotels, and movie theaters—were the first to lose their jobs. Their time away from work provided them an opportunity to re-evaluate their quality of life, career paths, and future. When local governments began relaxing social distancing mandates and economies began reopening, employers suddenly scrambled to re-hire workers, only to find that many former employees were less than eager to return to their old roles.
Stuart Andreason, director of the Center for Workforce and Economic Opportunity at the Federal Reserve Bank of Atlanta, says that workers are no longer satisfied with low-paying, menial jobs. “People in lower-wage work are saying, ‘I’m going to pivot to something better,’” Andreason says.
Numbers back up Andreason’s assertion. Almost 40% of former hospitality workers will not consider a hospitality job for their next position, according to a survey by Joblist. Among them, 45% seek a job with higher pay. Employers, desperate for workers to keep up with growing demand, are forced to increase wages to lure talent.
Professionals in higher-wage positions, including knowledge workers like programmers, web developers, online marketers, and more, have their own case for demanding higher pay. The pandemic forced companies to conduct more business online than ever before, creating the need for talent with digital skills—exacerbating the challenge of finding niche talent in an already tight labor market. Desperate employers must now pay more to hire professionals with the skillsets they need.
Like low-wage workers, knowledge workers also re-evaluated their own priorities during the pandemic. Many decided that their work-life balance skewed too heavy on the work side, and as a result, cut back their hours, downsized their responsibilities, or quit entirely. To offset the lost skills, employers offer current and prospective talent more money, resulting in higher wages across the board.
Four Ways Your Company Can Keep Up
As workers expect higher pay than ever before, employers must find creative ways to lure talent—especially considering over half of professionals in North American want to leave their current job this year. Increase your appeal to current and potential employees with these four strategies.
Raise Wages For Talent: The easiest way to keep up with rising wages for workers across industries? Increase salaries at your own company.
Offering higher pay doesn’t just ensure you keep up with your competitors when hiring and retaining talent. It can help improve worker productivity.
The efficiency-wage theory refers to the concept that higher pay leads to higher worker productivity. The theory states that wage raises essentially fund themselves because they increase retention rates and employee motivation levels. A recent Harvard University study backs this theory by linking higher pay to higher worker output at a Fortune 500 company. Other research shows that employees are 1% more productive for every .73% increase in their salary.
Offer Better Benefits and Perks: Strong benefits packages have always helped companies boost their draw to current and prospective employees. That hasn’t changed during the pandemic, with 30% of employees citing better benefits as the reason they switched jobs during COVID-19. Researching the benefits that talent in your industry prioritizes—such as tuition loan assistance or ongoing skill development programs—helps you hone in on those that will attract the right talent.
Offering in-demand but rare perks can also increase your appeal to current team members and prospective talent. For example, many knowledge workers increasingly value time away from work to spend with family, yet only 27% of U.S. companies offer paid parental leave. Offering a flexible schedule—which many employees want because it gives them time to spend on childcare—is another way to entice talent that is more motivated by receiving additional time rather than additional pay.
Optimize Your Employee Experience: In a job market characterized by record turnover, higher pay and better benefits aren’t always enough to draw new talent or keep existing employees. Companies need to focus on their employee experience, which consists of everything from company culture, mission, and values to the onboarding and offboarding process.
A recent study of over 250 global organizations reveals that those with better employee experience indicators see four times more profit and 40% less turnover. As a result, optimizing your employee experience doesn’t just increase your ability to hang onto and attract the right talent. It improves your bottom line.
Broaden Your Talent Pool: The age of remote work and distributed workforces is here. That means companies are no longer restricted to their local market when searching for professionals with the right skills. By engaging talent across state or international lines and utilizing freelancers and contractors rather than just full-time employees, companies give themselves a wider talent pool and increase their ability to bring in workers with the right skills, availability, and value for their needs.
Engaging workers in multiple markets creates extra compliance challenges, especially when you also must correctly classify talent as employees or contractors according to labor laws. That’s why companies turn to global hiring experts to handle compliance, classification, and other facets of distributed workforce management—helping them get the talent they need while keeping rising hiring costs in check.
Overcome Today’s Hiring Challenges With a Proven Partner
There is no question that employers today face serious obstacles when engaging and retaining top talent. But it’s also an age of enormous opportunity, as the advent of remote work and distributed workforces create new possibilities for companies seeking talent that meets their needs. Velocity Global is here to help.
Our Employer of Record, Agent of Record, and Independent Contractor Compliance solutions enable employers to easily and compliantly manage talent in all 50 U.S. states and more than 185 countries worldwide. Combining real human support with technology that makes talent management easier than ever, Velocity Global has the knowledge and resources to provide an exceptional experience for both you and your teams. Reach out today to find out how we can help you secure and manage top talent in an age of rising wages.