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Effects of Rising Costs on Employees and Employers Essay Sample

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Effects of Rising Costs on Employees and Employers Essay Sample


            The world has been facing a steady increase in the cost of living and this has had an adverse effect on the employment where it is affecting both the employers and employees. This is because the employees depend on their salaries and wages to cater for their needs which may vary from one employee to another. In the world there are various types of employers who range from small scale to large scale and those who pay basic salaries, commission based salaries and there are even those who pay various insurance premiums for their employees. However, this kind of arrangements have been severely been affected by the rising cost of living and general costs (Parikh, 1994).

            It is important to note that not only the employees are experiencing the rising costs because even the employers have their own costs they meet and they are rising too. The economy is slowing down and the employers find that their businesses are slowly dropping their sales and the running costs are rising in recent times. This has necessitated some of the businesses to be closed down while others are looking for cheaper methods of running their businesses and they have come up with the solution of firing some of their employees who face a lot of hardships (Bizjournal, 2007).

The nature of the rising costs effects on various levels of employment

            Most employees are loosing their jobs due to various economic issues including the recent global financial crisis and the credit crunch that is being experienced in the world today. Many people are loosing their jobs in the developed countries chief among them being the United States of America. Much as we would like to blame the governments for not steering the economy to better grounds, it is important to note that the companies themselves have played an important role in the current state of affair (CNN Money, 2008).

Data Series June 2008 July 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008
Unemployment Rate 5.5 5.7 6.1 6.1 6.5 6.7
Change in Payroll Employments -100 -67 -127 -403 -320 -533
Average Hourly Earnings 18.00 18.06 18.14 18.17 18.23 18.30
Consumer Price Index 1.1 0.8 -.01 0.0 -1.0  
Producer Price Index 1.7 1.2 -0.9 -0.4 -2.8  
United States Import Price Index 3.0 1.4 -3.0 -3.3 -4.7  
Derived from Bureau of Labor Statistics (2008)

It is very clear to see that the most affected by the raising costs are the employees. They stand the chance of loosing their employment either through job cutting or through the collapse of the employer company. The safest of the employees are those that are employed by the government or those working for government institutions. Unfortunately, the government and government institutions accounts for a very minimal percentage of any country’s employment and hence the predicament faced by the workers (Wright, 2000).

            Almost all forms of businesses, corporations, institutions and organizations are being affected by the rising costs of running. These means that many businesses are facing financial challenges and they can’t keep up with the costs they are incurring right now. Some may adopt other policies which are directed to face the challenges they are facing right now but the most likely option they have to take is reducing the number of employees under their pay (Wright, 2000).

            The small businesses which account for quite a significant number of employments in any country are facing hardships which they can accrue to the current state of affair economically and financially. Apart from the fact they are facing low sales because people do not have enough money to spend on goods, they are also facing the problems of increasing operation costs. The rising costs of some very vital products and services have ensured that the businesses are barely surviving while others are closing down and forcing their employees to seek employment elsewhere. The problem is that since they usually employ unskilled labor or lowly skilled labor, the employees are faced with hardships when they go scouting for jobs and qualifications are held in a very high esteem in today’s society. These people are most likely to end up being unemployed a factor that have contributed to some social and economic problems in many countries (Simkin, 2005).

Data Series Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter  
Employment Cost Index 0.8 0.8 0.7 0.7 0.7  
Productivity 5.8 0.8 2.6 3.6 1.3 1.3
Derived from Bureau of Labor Statistics (2008)

There is also the issue of corporations facing rising costs hardships. Those that are most affected are those that deal with financial matters. These corporations had given out loans and mortgages anticipating better economies but they were frustrated by the turn of events. The global financial crisis and the rising costs contributed a lot to the down fall of some of the major corporations in the world. This is because with the rising costs, the people who had taken loans and mortgages could not afford to pay and this burden was transferred to the corporation. Many could not afford the capital necessary for incurring the losses and hence led to their downfall. A downfall of such corporations means many jobs lost and increased financial insecurity around the world (Wright, 2000).

            Institutions are also not left behind in the list of those that have been affected by the rising costs. Apart from the fact that the operation and running costs are a heavy burden, some institutions are guarantors of major corporations which were facing rising costs also. Some institutions like insurance companies had to take the burden of falling corporations and people who could not repay their loans and mortgages. This means that many corporations also faced hardships and they also failed under the pressure. The implications of falling institutions are that more jobs were lost and this can explain the current state of affairs especially in the developed countries (CNN Money, 2008).

            The government is also affected by the rising costs and this has seen to it that it is also feeling the pinch of the rising costs and the financial crisis. The government has opted to salvage some of the institutions and corporations that they deem important to an economy and hence they have also accrued expenses that they had not planned for in the first place. The government is also concerned about the mass unemployment that is plaguing the country and hence has to come up with new job opportunities for the citizens. This is very expensive especially because in the developed countries, the government there is the payment of unemployment benefits which is given to people who are not employed. Furthermore, the government is supposed to take care of its citizens and this means with the rising costs the government has to set aside various resources to cater for the people’s basic needs like health, education, food and shelter. This has put the government at duress pressure because the costs of these services and commodities are rising by the day (Krannich, 2000).

Causes of rising costs

            One of the most influential factors contributing to the raising costs is the raising production costs. These can be attributed to the fact that various sources of energy and raw materials have risen in recent years and this means that the final product is going to be very expensive. This is inclusive of both goods and services. When the costs of raw materials are at peak high, the producers find it difficult to operate on the same price levels that they have been operating on. The profits are dwindling and this prompts them to hike the prices of their products. Through the channels of distribution the costs of these products are bound to rise even up three times their original prices (Simkin, 2005).

            Another cause can be attributed to the governments’ policies which in recent times have given producers and retailers the freedom to choose their own prices. Many of these producers and retailer are unscrupulous and they have taken the advantage to hike the prices of certain goods and products which have seen to it that many people are facing hardships in accessing these goods and services. Furthermore, the businesses themselves have opted to load all the burden to the consumers and this has brought about the difficulties the consumers are facing in accessing the goods. The government should intervene and come up with policies that dictate the level of prices a product is supposed to retail (Parikh, 1994).

            The price increases of various fundamental materials that are crucial factors to any economy have brought about the changes that have brought hardships upon the consumers. Such commodities range from financial services to major sources of power in any country. The recent rise in petroleum products prices have contributed immensely to the rising costs of living in the world today. Other contributors include energy price levels increments which have seen the running of many businesses become very hard. The insurance institutions have not been left out in the list of culprits either and this is because they have started charging high premiums even on basic packages like health insurance (Bizjournal, 2007).

            The food crisis and increasing in food prices has also contributed to the rising costs of living that is subjected to people in modern times. One of the most basic needs in the world is food and this has been made hard to get and this has been blamed to many attributes. One of the leading causes of this is the increased use of alternative fuels which have embarked on using food material to generate power instead of using the fossil fuels. This has made some large scale farmers to quit planting food materials and instead concentrate on power generating plants and this has had a constraining effect on the availability of food. The scarce food production has eminently led much higher food prices than ever before. There is also the global climate change which is affecting the farming sector of many developed and developing countries. There have been reported shortage of rainfall in various countries and this has created a lot of hardships in attaining a country’s uninterrupted food supply (CNN Money, 2008).

Effects on employment

            The rising costs have had an adverse effect on all areas concerned with employment. First and foremost, there has been a lot of unemployment as a result of the rising cost of living. For better understanding of the subject matter, it is important to break down this part into various parts, that is: effects on employees, effects on employers and effects on employees loosing their jobs (Simkin, 2005).

            The employees are facing various problems which are associated with the rising costs that have plagued the world today. One of the effects is that they cannot manage their own salaries and wages to cater for some of their basic needs. This means that the employees’ budgets are highly constrained that they cannot afford some of the basic needs they require. Furthermore, the employees cannot also access such services as health and meet insurance premiums hence they are having dire hardships when it comes to their health.  In overall, the live of the employees is deemed to be of poor living conditions with the employees not being able to afford a decent living (Parikh, 1994).

            The employees are also facing health issues because their salaries cannot be able to cater for these services. The employees who are not paid enough will have to first of all have to settle the most pressing bills and this include such bills as food bills and electricity. With the remaining the people can only afford the daily expenses that they are subjected to and this means that issues like health and medical care have been a foregone conclusion in recent times. These means that the cases of emergency have increased and this is because some governments have put up a legislation that no one should be turned away from any hospital in case of an emergency irregardless if they can afford the services of the facility or not. The played a great part in putting the lives of the employees in constant danger (Simkin, 2005).

            Another problems is that the employees cannot afford decent meals this days with the price of food skyrocketing. This is because the people who are supposed to produce foods are also facing production hardships or have been involved in the lucrative business of producing crops which are used for the production of renewable energy sources. The cost of processing has also risen and this has led to the high cost of food materials in the market. This means that the employees who are subjected to minimal wages have had problems accessing adequate food which is nutritional for their families (Krannich, 2000).

            The employers have not been left out of the hardships that are caused by rising costs of living. The businesses costs are skyrocketing also and this means that the costs of running, managing and operating a business are very high. This has prompted some businesses to go ahead and fire some people because they cannot afford all the payments that the staff is expecting off them. It is important to note that even employers have their own bills to pay and the sheer fact that the cost of running a business is very high today means that the cost they incur are very high. Some have resulted to forfeit some of the basic employment requirements like pension schemes and insurance funding. This may have brought about some legal problems (CNN Money, 2008).

            Employers cannot also afford to hire more people because of the increased running costs. Hiring new people means increasing the running costs of a company and hence the employers have shied away from employing more people. This has brought about the rising concern of the increasing levels of unemployment in many countries both developed and undeveloped. Statistics are showing that the United States has the highest unemployment levels since the era of the Great Depression. They are having do away with the workers they already have (Wright, 2000).

            The unemployed and the people loosing their forms of livelihoods are the worst effected by the rising costs of living; they cannot fend for themselves and the situation is looking glimmer. This has had a significant impact on the rate of crime where there is a marked increase in fraud, robbery, prostitution, suicide, abortion and burglary.


            The world is facing a crisis and the leading economies have a task and responsibility to change the way the world is at this particular time. However, we have noted that we cannot blame the government of any particular country because of the rising costs of living. The paper has found out that the rising costs of living are adversely affecting employment trends in all fronts. This has led to many people loosing employment opportunities while there are limited employment opportunities in the world. These has resulted in many people living in conditions that can be described as pathetic and it is necessary for major economies in the world to come up with reforms to arrest this situation before it gets out of hand (Wright, 2000).


Bizjournal, (2007) “What 20 top jobs pay: Salary study shows that top pay not always in largest metros” Retrieved on 10th Dec, 2008 from http://www.bizjournals.com/edit_special/47.html?page=2

Bureau of Labor Statistics (2008). Retrieved on 10th Dec, 2008 from http://www.bls.gov/eag/eag.us.htm

CNN Money, (2008) Retrieved on 10th Dec, 2008 from http://money.cnn.com/best/bpretire

Krannich, Ronald L.  (2000) Dynamite Salary Negotiations Impact Publications; 4th edition, pp 121 – 149

Parikh, Kiriti S. (1994). An article on “Who Gets How much from P.D.S.”. How much Effectively Does

Reach the poor, Sarvekshana Issue 58, Vol XVII, No.3, 1-34

Simkin, Joyce P. (2005) American Salaries And Wages Survey: Statistical Data Derived from More than 300 Government, Business & News Sources (American Salaries and Wages Survey) Thomson Gale; 8th edition pp 96 – 152

Wright, John W. (2000) The American Almanac of Jobs and Salaries (2000-2001 Edition) Harper Perennial; New Rev edition pp 125 – 159.

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