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The Impact of Inflation on Recruitment

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​The global economy is booming, every recruitment business I speak to is experiencing buoyancy like never before, the market has been like this for almost a year now and it shows no sign of slowing down any time soon. 

But with inflation rising, it begs the question how will this affect that buoyancy? 

One thing that has come up a lot is the cautionary conundrum, with the main concern being that if the booming global economy continues for too long then people may lack faith in the cycle, and are on the edge of their seats waiting for the boom to stop. 

I spoke to Dean Kelly, founder of RealiseMe, RDLC and Kellstar, Kalpesh Baxi, COO of Selligence and Logan Naidu, Group CEO of Kernel Global, to find out their thoughts. 

Kalpesh said, ‘I don’t think it will reduce hiring demand. What we may see is the changes in candidate behaviour impacting the war for talent. Candidates may become more cautious in moving due to perceived uncertainty in the economy due to inflation pressures and economic indicators.’ 

Logan said, ‘Medium and long term if it carries on at a runaway pace that undermines confidence in the economy and the cycle, people become a bit more cautious, which will impact confidence when it comes to hiring. But in the short-term, given that most of us place more than we employ, the recruitment sector is going to be a beneficiary on weight inflation, and that coupled with the buoyancy of the market you’re seeing people do the same kind of volume per head but with higher billing numbers because we are able to price more keenly on higher salaries.’

Dean highlighted several different implications of rising inflation combined with a booming global economy, as he said, ‘It’s complex but inflation could affect the IT market in several ways.’ I’ve split them out below: 

Interest rate rises to control inflation can be arbitrary in their actual effect, but they will make capital more expensive and tech companies with high levels of debt and leverage may have to postpone or drop projects due to borrowing costs. 

Wages rise as cost of living rises, so technical staff increases may make some projects cost prohibitive, meaning they may also get shelved. 

At a consumer level people may start to save with higher internet rates, holding onto money as costs rise and spending less in general, which can hit most markets as the fiscal cycle slows. 

If inflation in the UK rises faster than our international competitors, then UK goods will become relatively uncompetitive, leading to lower demand for UK goods and Sterling. This will cause a depreciation in the exchange rate and make overseas tech staff more expensive. Money may be drawn out of stock markets if highly leveraged listed businesses look risky which will cause a purchasing hiatus as investors retreat. 

However, all that said, I believe the markets are awash with cash still. Investors are always looking for the next big thing and covid has accelerated tech dependency by a decade in eighteen months. 75% of tech investments that took tens of millions, fail, 97% of startups fail, but investors only need one big winner and they make returns that cover losses many, many times over. Of course some recruiters may struggle if they have high costs, debt and the staff costs rise too fast to make a decent profit, but most will be fine. Public sector may struggle more, as the public sector’s wages won’t be able to compete with the private sector with runaway inflation.