Inflation, inflation, inflation. We do not only hear that word 15 times a day, we experience it every day—at the gas pump, in the supermarket checkout line and as we buy that before-work coffee and bagel.

Many economists are concerned that the interest rate increases approved by the Federal Reserve will slow economic growth and cause a recession. It's too soon to know but, although the labor market remains strong, there are some signs of changes ahead. 

Here are four ways those changes could impact your HR department:

1) Recruitment and Unemployment

On Aug. 30, the U.S. Department of Labor (DOL) issued its Job Openings and Labor Turnover Survey (JOLTS Report) for July. 

Job openings had declined slightly in June to 10.7 million, but in July returned to 11.2 million. The biggest increases in openings occurred in transportation, warehousing and utilities; arts, entertainment and recreation; federal government; and state and local government education. Job openings decreased in durable goods manufacturing. During the same 30-day period, hire and separation numbers remained little changed, with 6.4 million hires and 5.9 million total separations.

There are some changes to note here. The job opening numbers have—until now—been steadily increasing, as have the hire and separation numbers. It's too soon to tell if these numbers are a blip or indicative of more changes to come. 

Total nonfarm employment and the unemployment rate have now returned to pre-pandemic levels, according to the DOL. The U.S. unemployment rate was 3.5% in July 2022. That's low, but not as low as most of Minnesota, which has six metropolitan areas with unemployment rates less than 2.0%. Mankato and Rochester reported unemployment rates of only 1.3%.

Tips for employers:

• Identify the best resources to help you stay informed about labor market activity in your market and consult those resources regularly.
• Anticipate continued difficulty recruiting, especially for entry-level candidates.
• If raising pay is necessary to hire new talent, review pay levels for current, experienced employees to ensure internal equity.
• Streamline your application process. Many candidates report “giving up" trying to apply online because of a confusing, convoluted or redundant application process.

2) Wage Growth

Real wages are on track to increase 3.9% in 2022, according to the “Salary Increase Budget Survey" from The Conference Board. That would be the largest increase since 2008. Employees in all roles—executives, managers, professionals and hourly—are expected to receive similar increases.

Wage growth will also vary by geography. In areas with low unemployment and high demand for workers, expect wages to rise more sharply and quickly. In areas with high living costs, wages will rise to keep pace with those costs, which may cause businesses to raise prices—perpetuating the “wage-price spiral" that is currently in motion.

Despite high wage growth, the current inflation rate of 9.1%, the highest recorded in 40 years, results in negative wage growth for many employees. What that means is: For an employee making $40,000, the individual's real income is reduced to $36,664 when the current inflation rate is considered.

Tips for employers:

• Develop and implement a long-term salary planning process that addresses current and anticipated labor market issues.
• Be aware of differing costs in different labor markets. This is critical for employers doing business in multiple locations.
• Review current pay policies for competitiveness in recruiting markets and anticipate the need to increase wages to recruit and retain.
• Consider other types of salary increases, like equity increases, bonuses or special incentives to supplement or replace the standard yearly increase of 2%-3%.

3) Minimum Wage

The federal minimum wage remains at $7.25 and is not likely to be raised any time soon. Twenty-one states currently maintain this minimum wage level.

As always, states and municipalities are well ahead of the federal government in raising wages to address costs of living and labor. And a lot of these changes take effect mid-year. Some of the states that recently enacted changes include CA, CT, DC, IL, MD, MN, NV and OR. Changes in Florida will take place on Sept. 30.

Tips for employers:

• Be aware that minimum wage changes may not be state-wide and may not take effect on Jan. 1.
• Understand that even though a location may have a specified minimum wage, prevailing wages for specific jobs in specific markets may be well above these minimum levels.
• Keep informed of what's happening at federal, state, and local levels in all the locations where you do business.

4) Legislative Outlook

The Biden administration continues to take steps to advance its workplace policy agenda prior to the 2022 midterm elections. The proposed 2023 DOL budget includes major funding to expand registered apprenticeship opportunities, funding to allow the Occupational Health and Safety Administration (OSHA) to rebuild its rulemaking and enforcement capability and expand its whistleblower protection program, and increased funding for the Wage and Hour Division to more aggressively enforce rules regarding the misclassification of employees as independent contractors.

A federal proposal for paid family leave, originally included as part of the Build Back Better Act, is being considered by Congress as a standalone proposal, but is not expected to advance.

Eleven states and Washington, D.C. now offer some type of paid leave for employees. Federal employees are also eligible for up to 12 weeks of paid leave under the Federal Employee Paid Leave Act (FEPLA) of 2020.

Tips for employers:

• Consider subscribing to the HR Support Plan of Affinity HR, the endorsed HR partner of Big “I" Hires. The HR Support Plan tracks state legislative updates that affect workplace policies and practices.
• Identify additional resources to help you stay informed of changes and new requirements at the federal, state and local level and use those resources regularly to stay informed.
• Increase focus on compliance. Expect increased enforcement of OSHA, Office of Federal Contract Compliance Programs (OFCCP), and DOL Wage and Hour Division standards and rules.

Susan Palé is vice president for compensation at Affinity HR Group Inc. Affinity HR is the endorsed HR partner of Big “I" Hires, the Independent Insurance Agents of Virginia, Big I New York, Big I New Jersey and Big I Connecticut.