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Ghanaian employers will have to spend more to keep their employees from looking elsewhere for better wages. To keep those workers, employers may have to raise wages along with inflation rates, offer better incentives, or operate differently. These are not particularly exciting times for any employer as the economy slips down further into a possible recession. But if inflation continues apace, employers could be trapped in a cycle of rising wages only to see those gains wiped out by inflation.

For now, Ghana’s inflation is at its highest level in  6-years over the past 12 months, with prices on average 15.7%  higher than they were a year ago and 2.4% on the month, fueling worries about the dent rising prices are putting on Ghanaian’s salaries. That figure considers a whole basket of goods and services, so it will affect people differently based on what they purchase, but price increases have outpaced typical wage growth. Price hikes are especially high for items like fuel, food, and household expenditure. Inflation is only expected to get worse as gas prices rise significantly due to Russia’s war in Ukraine.

To put it mildly, if you earned 20 cedis and worked 40 hours a week for every week of the year, you will have earned 41,600 cedis last year. Let’s assume that you paid no taxes, social security or made literally no purchases. It means your total wages will be enough to buy you about 6 tonnes of iron rods which costs around 6,200 cedis a ton last year.

Now let’s say you got a 5% raise in salary to 21 cedis an hour this year. If you worked the same amount and again paid no taxes, social security, or purchases, at the end of the year you would have earned about 43,680 cedis but you would no longer be able to purchase the same amount of iron rods which now costs 8,500 cedis and could rise even further. Even though you made more money, that money is worthless because while the literal amount you’re paid grew 5.1%  on average in February 2022 compared with February 2021, real wages — or wages adjusted for the effects of inflation declined significantly.

Ghanaian firms will have to lean more heavily on other types of perks to attract and retain their employees. That could include better health care coverage, more time off, and remote work options, among other offerings such as professional development, in addition to cheaper benefits and better pay. While potentially cheaper than a 15.7% annual raise, many of these perks do cost money.

Ghana’s Employment Minister, Ignatius Baffour announced in early January a seven percent increment in the base pay of public sector workers for the year 2022. This was after the Trades Union Congress agreed on a base pay increment for public sector workers, as part of labor negotiations with the government. Although the 7%  wage increment appears far better than the initial 4% government announced last year, it pales into sheer insignificance in comparison with the current 15.7% inflation rate.

Whatever the decision, someone will have to bite the bullet and employers will have to decide whether they can or should pass on those costs to customers, which could potentially exacerbate inflation, or if they can just swallow them as a cost of business. That could mean producing less stuff overall or lowering their profit margins.