Economics is a science full of sad ironies, but one of the saddest and most ironic is this: At the individual level, the most obvious short-term remedy to inflation turns out to be a driver of it. 

“There’s this discussion in economics of a ‘wage-price spiral,’” says BYU economics professor Christian vom Lehn. “Prices rise, and workers want wages higher to pay for the more expensive goods and services they want to consume. That pushes their wages higher. But if there are limited goods and services, that will just push the prices higher. And you get into a kind of spiral.”

In the near term, these demands for higher wages are relatively easy to meet. Consumers are paying more for goods and services, which means revenues are up.

“Inflation is great for business margins in raw accounting terms because now you’re selling your goods and services for a higher price,” vom Lehn says. “Margins are going to be responding to inflation too, and this is where the spiral can get out of hand.”

It only takes a few turns of the wage-price spiral before it becomes unsustainable, often forcing workers to look for higher-paying opportunities elsewhere.

“A business then has a number of choices they might want to make,” vom Lehn says. “They might say, ‘It’s too expensive to retain you, and so we’re not going to try and compete.’ Or the business might try to match what an outside opportunity might offer. Or, the business might try to compete in non-monetary compensation dimensions.”

Utah’s inflation rate is the third highest in the nation, primarily driven by surging home prices experiencing enormous buying pressure applied by the pandemic-fueled waves of coastal transplants that began arriving in earnest in 2020. But these new arrivals also impacted compensation trends, according to Robb Lifferth, co-founder of IsoTalent, one of the primary recruiting sources for high-growth firms along Utah’s tech corridor. 

“Starting in the fall of 2020 in Utah, we saw a 10 percent increase in base salaries across the board, and that has since crept up to 15 percent,” Lifferth says. “At some point, the money runs out, and you have to decide where you’re going to spend your cash. And we’re seeing HR professionals get really creative on what they need to do to attract talent and retain talent.” 

Lifferth says one particularly effective, non-monetary tactic for holding on to talent acknowledges the value of having advocates on the home front.

“On the retention side, you’re seeing a lot of enhanced benefits directed at winning over spouses. They’re combatting that call you get from recruiters offering more pay by wrapping benefits around the spouse’s needs, making them so enticing that it shuts down that conversation,” Lifferth says.

That’s precisely the approach Scott Allen takes as VP of human resources at Metasource.

“I don’t want to lose anybody. When we design benefits, we think of it from the perspective of the whole family, not just the employee,” Allen says. “We make sure that we’re communicating effectively with the spouse or significant other, who is also a consumer of the benefit that we’re offering, to meet them where they’re at and make sure they feel cared about.”

Allen finds his employees’ eroding spending power can be countered not just by increasing pay but also by helping them reduce expenses. 

“We make discount programs available to employees. We also support those who decide to move to lower-cost markets,” Allen says, adding that Metasource relocation support includes legal counsel on home purchase contracts, personal leaves of absence during the move, and making accrued time off cash-outs available to help with things like utility deposits.

Von Lehn agrees that flexibility in location is key to competing during a tight labor market. 

“Businesses would love to have workers back in the office, but in this environment of high inflation, a way to retain workers without raising wages is to say, ‘We’ll not be raising your wages, but we’ll let you be flexible and work remotely,’” vom Lehn says, adding that this may partly account for the fact that so few businesses are requiring that workers return to the office. 

But where this wage-price spiral is particularly manifesting itself is in lower-wage jobs that can’t be carried out remotely.

“Inflation is mostly spreading through lower wage workers because employers just don’t have much else to offer them in terms of alternative options to be compensated. There’s a decent ability to switch jobs and find new opportunities,” vom Lehn says. “This is especially true in food service jobs, where we’ve all seen the signs showing the significant rise in what they’re paying—much higher than even a year ago.”

Restaurateur Reed Slobusky launched downtown Salt Lake’s HallPass in December of 2019, just in time to be severely disrupted by Covid lockdowns. When the time came to resume more normal operations, he found the hiring landscape had shifted, and he had to increase his workers’ minimum guaranteed wage to $19 per hour. 

Then, in June of this year, Slobusky opened Snowmobile Pizza.

“It took a bit longer to get people hired than what we were anticipating based on our experience with HallPass,” Slobusky says. “It was eye-opening. We were being super aggressive, offering $22 per hour plus tips, and it still took a long time to get staffed up.”

Slobusky finds culture to be the key to holding on to quality hires once in the door.

“What you might have paid somebody a month ago was great, and all of a sudden, it’s not. You can’t just pay people to stay or you’ll go out of business. You’ve got to give them reasons to want to be there,” Slobusky says. “We’ve been pretty aggressive about bringing in people from out of state at the higher levels, which gets the entry-level staff excited about having someone to learn from versus just worrying about if they’re able to make 50 cents more here or a dollar more there.”

Of course, the wage-price spiral can’t endure forever—just as a period of economic expansion cannot—and it often ends up being the end of the latter that forces the end of the former. And indeed, Slobusky has recently begun observing signs of another shift in the economy. 

“People seem to be hearing the chatter that the economy is turning, and I think they’re less willing to jump ship for another gig somewhere else,” Slobusky says. “It’s like they’re looking for someplace to ride this out and be a little bit more long-term.”