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Impact of Inflation on Human Resource Management

Michael Vilamizar-Mora

Florida International University

MAN 4301 RVAA 1235: Human Resource Management

Professor Kia-lee Faison-Bussey

May 27, 2023

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Impact of Inflation on Human Resource Management

Human Resource Management is a sector that can be impacted by a vast number of

factors. One of these issues is extremely concerning as it can bring other issues along with it.

Causing even larger problems. This issue is inflation, and it can contribute to complications with

compensation/ benefits, recruitment/retention, employee morale/engagement, and

training/development, among others.

Background

Inflation is defined as the “overall general upward price movement of goods and services

in an economy.” (US Department of Labor, 2023) Of course, inflation has been an issue

observed by society over centuries and has caused a great deal of turmoil not only economically,

but also politically, socially and psychologically. Human Resource Management “includes all

aspects of people management to effectively meet an organization's goals.” (SHRM, 2023)

Discussion

These aspects of people management can be considered the same or closely correlated to

those that are affected by inflation. Beginning with the most rudimentary of all, money. With

price increases of goods and services, cost of living rises. It can become more difficult for

companies to compensate and continue to provide benefits to their employees for their work. In

many cases, the only way to keep up with inflation are pay cuts, reducing benefits, or

downsizing. This can directly relate to employee morale and engagement, as there are higher

expenses and less compensation, employees could feel dissatisfied with the income they’re

receiving, causing motivation and productivity to decline. It can also cause strain in work

relationships between employees and management as employees could demand higher wages

and benefits due to the increased costs, but it may not be a feasible for the company’s
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management to do so. Recruitment and retention can be impacted due to the inability of a

company to hire people or provide reasonable compensation and benefits to either new or

experienced employees with the skills necessary to keep an organization going. This can cause a

job shortage as well as compel employees to search elsewhere for more competitive pay and

benefits. Inflation can cause great damage to an organizations budget, making it difficult to

allocate funds for employee betterment programs, and professional development training, which

can bring a concerning amount of stagnation to a company, as well as increased employee

dissatisfaction with their career progression. It can also cause backlash with customers as

employees may not have the necessary training to deal with certain situations. Even though

inflation isn’t completely preventable, it is necessary for companies to have feasible measures

that can be taken to weaken its negative impacts. Strategies can include allowances salaries and

benefits packages that can consistently keep up with inflationary pressures, cost-effective

training practices such as online/ distance learning and in-house training programs, and fostering

better and more open communication channels between employees, management and financial

teams.

Conclusion

Inflation can be a massive deterrent in human resource management operations in

organizations. Due to increases in prices of goods, services and cost of living, it can cause issues

with compensation, benefits, retention, morale, engagement, and training. Organizations should

have an assortment of avenues in place to lessen the adverse impacts that inflation can bring.
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References

https://www.dol.gov/general/topic/statistics/inflation

https://www.shrm.org/resourcesandtools/tools-and-samples/hr-glossary/pages/human-resource-

management-hrm.aspx