Navigating Wage Increase and Inflation’s Impact through Recruitment Outsourcing in 2023

Jamie Sharp

Writer & Blogger

The year 2023 has ushered in significant economic changes, especially in the area of wage increase and its consequential impact on inflation. Wage increase is a notable driver of inflation because wages constitute a substantial portion of an organisation’s operational expenses. When wage growth surpasses productivity, companies become compelled to increase prices to preserve margins and profitability, propelling inflation upwards. The inflation rate in most nations is rising to record levels, affecting the disposable income of many, whilst interest rates have increased significantly as governments strive to curb inflation.

Going by the uncertain economic outlook of 2023, organisations, human resources experts, and talent acquisition professionals must seek to understand the implications of rising employee wages in today’s fiercely competitive job market. This article explores increasing wages and inflation’s impact, shedding light on their intricate interplay and the need for effective recruitment outsourcing strategies. You might also find our blog on the cost of living crisis exceptionally beneficial.

The UK’s Wage Growth and Jobless Rate: An Overview

According to recent statistics on UK wage growth, the basic pay index exhibited a surprising rise of +7.3% in the 3 months leading up to May 2023, exceeding expectations outlined in a Reuters poll, which foresaw an increase of +7.1%. This notable disparity underscores the dynamic nature of the current job market. 

Amidst this wage inflation, there has been a rise in the UK’s unemployment rate. Morning Star financial research reports that the jobless rate in the UK unexpectedly rose to 4.0% in the 3 months to May 2023. This occurrence is prompting the need for further research. Could an increment in wages have played a role in this? Of course, the relationship between wage growth and unemployment is complex, hence the need for closer examination.

The Relationship between Wage Growth and Inflation

The relationship between wage growth and inflation is better elucidated using the wage-price spiral macroeconomic theory which suggests that rising wages increase disposable income, elevating the demand for goods and inducing price escalation. Rising prices increase demand for higher wages, which results in higher production costs and further upward pressure on prices, creating a conceptual spiral. Moreover, the ripple effect of inflation encompasses escalated interest rates. Interest rates tend to move in the same direction as inflation because they serve as the primary instrument utilised by the government to manage inflation by elevating the cost of borrowing funds to rein in the demand for goods and services.

Data from the UK’s Office for National Statistics (ONS) reports that between April and June 2023, the annual growth in regular pay (excluding bonuses) was 7.8%; this stands as the highest annual growth rate since comparable records commenced in 2001. To be more specific, the finance and business services sector emerged as a frontrunner, boasting an impressive regular annual growth rate of 9.4%. Following closely, the manufacturing sector experienced a growth rate of 8.2%, marking its highest in over two decades. This wage growth is reshaping the expectations of job seekers and amplifying discussions around wage inflation. 

Navigating Wage Inflation

As businesses struggle with these new changes, it has become necessary to understand efficient wage management strategies to stay afloat. Navigating wage inflation requires a harmonious blend of retaining top talent and balancing costs. Whilst it is important to offer competitive wages to prospective employees, talent acquisition professionals should adopt sustainable business practices during recruitment. An effective approach would be to extend a modest wage and attracting incentives, recognising that pay increments might not be viable for every business. Research shows that almost one in three (28%) of UK employees would display greater loyalty to a company that offered rewards or incentives, such as a £50 gift card, as people continue to seek ways to reduce the impact of the cost of living crisis.

Recruitment Outsourcing as a Strategic Solution

Amidst the backdrop of a wage increase, recruitment outsourcing emerges as a fantastic solution with several advantages. Companies can leverage the specialised expertise of an RPO partner to streamline their talent acquisition process. This way, it becomes easier to identify and retain top talent. RPO partners also help companies remain competitive by providing attractive wages without any financial strain. By collaborating with recruitment outsourcing agencies, HR professionals can tap into an extensive talent pool, gaining insights into effective compensation strategies.

RPO partners like eSift, offer innovative staffing solutions to efficiently manage wage costs and counterbalance the impact of inflation. They leverage their deep understanding of market trends to create flexible staffing models that accommodate changing economic conditions. From short-term hires to contractors, these solutions offer the remarkable agility to navigate uncertain times while placing a lid on rising compensation budgets.

Predictions for 2023 and Beyond

The convolutions of wage increase, inflation, and recruitment outsourcing are expected to persist throughout the rest of 2023. HR and talent acquisition professionals must be flexible and proactive to stay ahead of the curve. As market dynamics keep evolving, a proactive attitude towards talent acquisition, supported by data-driven insights and collaboration with RPO partners, will be crucial for navigating the challenges in 2023. 

It is becoming clear that the forecasts from late 2022 by the Bank of England and the OBR predicting a rapid fall in inflation in 2023, leading to a return to the 2% target early in 2024, were too optimistic. However, in its March 2023 Economic Outlook, The National Institute for Economic and Social Research (NIESR) had predicted that inflation in 2024 will still be well above target (around 4-5%), only falling back to 2% in 2025. This seems to be a much more realistic assessment.


The convergence of wage increases and inflation has marked the beginning of a new era for HR and talent acquisition professionals. Navigating the evolving job markets requires a strategic understanding of wage growth trends and their consequences. Recruitment outsourcing stands as a potent solution, serving as a bridge between a company’s desire to attract top talent and the need to manage costs amidst inflationary pressures. As we progress into the future, the ability to harness these strategies will be instrumental in ensuring success in an ever-changing business landscape.

Find out how our award-winning, on-demand recruitment solutions can reshape the way you meet your hiring needs.

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