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Human Resources

How to help the workforce through the cost of living crisis

Published 8 June 2022 in Human Resources • 6 min read • Audio availableAudio available

Employees are facing a difficult few years as inflation pushes the cost of living out of reach. What does this mean for their employers, and should they step in to help?  

Workers across much of Europe are feeling the pinch. Soaring inflation, caused by factors including COVID-19 disruption to supply chains and the war in Ukraine, is fueling a cost of living crisis so severe that even employees on median incomes are struggling to get by. The fear is that the crisis will get worse before it gets better, plunging even greater numbers into financial hardship.

Against this backdrop of the biggest inflation spike in decades, trade unions and other groups are calling for employers to do more to support their staff through difficult times. The question for employers is not just how they might do that, but also whether they should.

There is certainly no doubting the scale of the crisis. Consumer price inflation hit 9% in April in the UK and 8.1% across the European Union. But these figures barely hint at some of the pressures facing households – eurozone energy price inflation, for example, is close to 40% – and even households that would once have been considered financially resilient are struggling. In the UK, the energy regulator Ofgem estimates that 6.5 million households have already slipped into fuel poverty, and it expects that number to rise to 12 million in the autumn.

In this environment, growing numbers of employees will go to work each day feeling anxious about their financial problems. This is not a crisis that will affect only unemployed people or workers on low incomes – middle-income households are at risk too. Here, I answer three questions about what those people’s employers should be doing about it. 

Employee benefits are non-financial compensation provided to an employee as part of the employment contract.

1. Are senior leaders ready to respond? 

It is not clear whether business leaders fully understand the plight of their employees. At the height of the pandemic, many business leaders s were praised for their compassion, with CEOs setting the tone by connecting directly with their organization . But the pandemic was an external shock that affected every employee, irrespective of their wealth – the cost of living crisis is something very different. 
 

Insulated from price rises by high incomes and accumulated wealth, many senior executives may be simply unaware the financial challenges their staff now face. Only the more empathetic and engaged leaders will understand the scale of the problem – and the impact it could have on their workforce. 

2. What exactly can leaders do to help?

When employers do recognize financial hardship in the workplace, there are several ways in which they could help – and the most obvious responses will not necessarily be the most appropriate. 
 

Salaries 

Salary increase is clearly an option, particularly as wage increases across most of Europe have been running well behind consumer price inflation. But there are potential difficulties here even at organizations where more generous pay is affordable. One problem is that across-the-board salary increases do not efficiently channel support to those who need it most, and higher-paid staff may demand increases too in order to maintain salary differentials. Then there is also the broader economic reality that wage increases may simply contribute to the inflationary spiral.

Benefits, subsidies and discounts 

One alternative might be to focus resources on benefits that are likely to be of most value to hard-pressed workers. That might include more support with the cost of childcare and healthcare, for example, or subsidized meals in the workplace. Similarly, transport costs are a disproportionate burden on those on low incomes, so subsidies here could prove valuable.

In addition, employers could find ways to put their purchasing power to work on behalf of their staff by sourcing products at lower prices than individual workers would normally pay. One straightforward way to do this is to offer staff access to a rewards scheme. Arrangements such as Ben and RewardGateway, for instance, offer employees significant discounts at outlets such as retailers, supermarkets and pharmacies. 

Wellbeing 

Employers can also take a look at wellbeing. They are in a strong position to support improved financial literacy, if only by signposting employees to independent sources of advice on money and debt and by ensuring that staff are claiming all the benefits they are entitled to at work. Increased support with mental health may also be crucial as financial stress increases. Here, employee assistance and wellbeing programs can provide expert help. 
 

Talk to employees 

For employers that do not know which of these measures their staff will value most, there is a simple solution: ask them. There are formal and informal ways to do this – from staff forums to suggestion boxes and even casual conversations.

Nor do employers have to do everything themselves. One important role may be to act as convenors of assistance and collaboration. Employees may be looking to support one another: workplace venues might be ideal for holding sales of affordable secondhand clothes, for example, while the staff canteen can host lunch clubs where staff bring food to share. 

Across-the-board salary increases do not efficiently channel support to those who need it most, and higher-paid staff may demand increases too in order to maintain salary differentials

3. Why should employers bother?

For some organizations, helping their employees in these ways will feel like a moral imperative. And for those employers that in recent years have invested in establishing their purpose and values, failing to support employees in their time of need could attract adverse attention from key stakeholders.

In embracing the environmental, social and governance (ESG) agenda, many employers have insisted that they recognize their broader role in society. Their commitments to community and social responsibility – made both publicly and to their own staff – may now face a test. 

But leaving aside the possible accusations of hypocrisy, there are other hard-headed reasons to act. Staff struggling with financial difficulties are unlikely to perform at their best. One recent report by the UK’s Chartered Institute of Personnel and Development, the professional body for human resources, found that more than one in four employees felt that money worries had affected their performance at work. 

Then there is the question of recruitment and retention. Skills gaps and labor shortages are currently holding many business back. The European Commission warns that about a quarter of manufacturing and services businesses, for example, say that lack of workers limited production in January – the highest number on record. In this context, staff who feel their employers do not value their contribution or provide the support they need will not hesitate to move on. 

Thanks for nothing 

But there is a caveat here. One study, co-produced by IMD authors, found that employers providing ‘organizational citizenship behavior’ – support that leaders give to their employees even though they are not contractually obliged to – should not expect to be rewarded for it in the ways they might imagine.

Employees, it appears from this study, expect their organizations to offer this support. If they appear to be upset, they expect their bosses to ask why, and to do their best to provide consolation. And for their part, employers that offer that help expect to see a positive outcome – they expect some gratitude. But employees do not see the need for any reciprocity: for them, this extra citizenship behavior is simply part of the job for their bosses.

So organizations that take positive action to protect their staff from the cost of living crisis may be disappointed by the magnitude of reaction from the workforce. But it is not all bad news for business leaders. Employees do at least appear to attribute leadership qualities to managers who give them useful support, and that has value of its own especially in these challenging times. 

Authors

Anand Narasimhan - IMD Professor

Anand Narasimhan

Anand Narasimhan serves as Shell Professor of Global Leadership and Dean of Faculty and Research at IMD. He is also Director of the Team Dynamics Training for Boards program. He is an expert in leadership development for senior executive teams and boards, and his research focuses on institutional change, organization design, social networks, and emotions in the workplace.

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