Why are recent staffing shortages and wage increases fanning inflation?

As the ramifications of inflation continue to ripple throughout the Canadian economy, rampant staffing shortages are leading to increases in employment wages, one economist says.

Despite higher pay seeming like a win for those employees who are filling the gaps left by fewer workers, experts warn this trend will render inflation worse.

“We’re seeing a fundamental driver of wage inflation,” said Sal Guatieri, senior economist and director at BMO Capital Markets.

“If workers are in short supply then companies just have to pay more to not only attract new workers but to retain current staff so that people don’t leave for other companies,” he told CTVNews.ca in a phone interview Thursday.

Guatieri explained that if employers are paying their staff more, the cost of their services will also increase. This leads to higher prices for goods and services.

This chain reaction of increasing costs is especially difficult for small business owners.

James Stockton, who owns and operates Sound Factory Music School, a music teaching studio in Waterloo, Ont., told CTVNews.ca Friday the costs of his services increased alongside the wages of his employees.

“Our wage is tied to our price,” he said. “We’ve raised our price accordingly because in order to meet our costs we have to make our percentage. Unfortunately, the customer has to pay it.”

Stockton said a wage increase was the only option for retaining and obtaining employees in a competitive market of music educators.

The same causation of increased costs is applicable to various sectors of small businesses – most notably, the hospitality industry.

A June survey, released by Statistics Canada, found that 64 per cent of accommodation and food service respondents said they would encounter labour shortages in the next three months.

To fill such gaps, some employers are reverting to technological alternatives instead of hiring more staff.

Graham Campbell, chief operating officer of Givex, a technology company that offers kiosks and management software for restaurants and businesses, has seen how shortages in the hospitality industry have left employers with too much work and too little help.

“Thankfully things are opening up, and people are going back to these new businesses, but the time it takes to hire new staff and train them and retain them has left a gap there. While that gap exists, clients rely on technology like ours,” he said to CTVNews.ca in a phone interview Friday.

Givex’s technology allows services to pivot to online sales, which can alleviate the pressure to hire more employees during a time of inflation.

“Online sales and delivery modules allowed [short-staffed] businesses to not only stay afloat but also boost their sales,” he said.

Although digital solutions are not a replacement for fewer employees, Campbell believes they can effectively supplement companies hoping to elevate the customer experience.

“Reducing overhead and increasing operational efficiency should be the top priority of businesses,” he said.