If you want to see an economist sweat a little, bring up the term “stagflation.” Stagflation is such an economic boogeyman that, for decades, economists didn’t believe it could exist. Unfortunately, stagflation is very real and could occur in the U.S. soon.
What is stagflation?
Stagflation, a combination of the words “stagnation” and “inflation,” is a rare and harmful economic condition where prices are high (inflation) during a depressed economy with high unemployment and slow economic growth (stagnation).
Although no one is a fan of inflation, it typically occurs during a robust economy where unemployment is low, wages are high, and products are in demand. Typically, inflation cannot exist in a stagnate economy where unemployment is high and product demand is low. The prevailing economic theory once was that a stable inverse relationship existed between inflation and unemployment. When one went up, the other went down.
Then came the 1960s and 1970s, when both the British and U.S. economy experienced stagflation. It was the last time the U.S. economy faced stagflation. However, that does not mean stagflation is only a distant and unpleasant memory unlikely to resurface. In fact, the last time stagflation occurred in Great Britain is as you’re reading this. (How bad is stagflation? It can cause a Prime Minister to resign after eight weeks in office.)
Is the U.S. headed for stagflation?
The tricky thing about stagflation is that the factors that cause it are difficult to predict.
The U.S. economy is in an unusual situation. Inflation is the highest it’s been in four decades due to several issues, including the global effects of the war in Ukraine and lingering supply chain issues caused, in part, by pandemic-related shutdowns. Also, unemployment is rising, even though employers are hiring.
So, conditions are in place that could cause stagflation to occur again. Some economists believe it’s inevitable (including “Wall Street’s ‘Dr. Doom,’” but what else could we expect from that guy?).
Preparing for stagflation
The impacts of stagflation are felt by every business and consumer. However, small businesses tend to acutely feel the effects (such as higher prices, layoffs, supply chain issues, and high interest rates).
Be flexible
The greatest strength of a small business is flexibility. Small businesses can easily adapt and pivot as long as flexibility is ingrained in the company culture.
For example, many small businesses have adopted an agile talent strategy that makes it easy to quickly scale up and down as needed.
“An agile talent strategy is a fundamental shift in how businesses access talent that gives small and mid-sized businesses the edge they need to compete,” said Elizabeth Eiss, Founder and CEO of the talent curation and freelance recruiting platform ResultsResourcing. “For an agile talent strategy, jobs that are essential to the business are handled by full-time employees. Every job that supports those core roles is filled by contract talent on an as-needed basis. An agile talent strategy provides much-needed agility during unpredictable economic times.”
Cut costs
Another benefit of an agile talent strategy is that companies can maintain costs without sacrificing customer service.
“One of the biggest mistakes companies make during a down economy is slashing staff while only considering the bottom line,” said Eiss. “However, the absolute worst move a company can make is to negatively impact customer service. If you alienate existing clients during tough economic times, getting them back is nearly impossible when the economy turns. An agile talent strategy ensures that all client-impacting roles remain staffed with full-time employees while the supporting roles are filled by freelancers when that work is required.”
Boost productivity and quality
As long as a company knows what makes them unique from its competition, it can lean into those strengths to maintain current clients and recruit new ones. For example, since inflation is high, companies probably need to raise the prices of their goods and services. New and existing clients are liable to pay more for something “new and improved.” So, finding ways to innovate is essential.
Agile businesses are better equipped to navigate challenging economic conditions, including stagflation. When your small business is ready to shift to an agile talent strategy, you’ll want a freelance recruiting platform that matches business owners to specific, vetted freelance talent. It’s a great way to source the best talent to fit your skills needs and outsource a non-core role (recruiting) to a pay-for-performance partner. You get better quality and flexible talent while lowering opportunity costs and hiring risks.
Are you ready to learn more about how agile talent can help you during uncertain times? Book a free, 30-minute call to get your questions answered and learn more. To schedule, CLICK HERE.
