Dominant Employers Might Contribute To Increasing Unemployment Rates In Rural US Due To The Federal Reserve Interest Rate Hikes

Some employers have significant labor market power. They can easily attract large numbers of job applicants to their vacancies without having to give away much in the form of wages. they are known as dominant employers and are scattered all over the US, particularly the rural areas.

Different businesses react to the interest rates rising with different strategies. However, the most commonly observed strategy among dominant employers is to fire workers to battle the rising interest rates. They know that they can easily hire workers back when the rates are lower. This will mostly affect less educated workers in poorer regions of the US.

Businesses are reducing their investments and payrolls to deal with the fastest interest rate increase in a few decades. Consumers are starting to spend less. The unemployment rate, which suddenly touched a fifty-year low, will begin to rise with the action of dominant employers in the rural US.

Typically, dominant employers comprise almost 10 percent of vacancies in their regional market. They are mostly segregated to the less populated areas of the US geography. These rural areas typically have lower incomes and there are not many employment options for workers to choose among.

Compared with other employers, dominant employers will cut back on open positions more when interest rates rise. Fewer vacancies will contribute to reducing employment. Dominant employers, like all other employers, will also cut wages to battle rising interest rates. with the rise of interest rates, the demand for products will decrease. Then, the production costs will rise for businesses while the need for labor will reduce. Therefore, dominant employers can afford to cut back on staff.

The Federal Reserve must raise the interest rate to try and bring down inflation. However, while doing that, the unemployment rate will definitely increase. A minor increase in the unemployment rate can significantly alter the wage and price pressures.

But in rural regions where there are fewer dominant employers, a small increase in the unemployment rate will create a strong decline in wage growth. When there are dominant employers, this scenario will differ. They will not reduce the wages of employees because they can cut back on staff. Therefore, in regions where dominant employers abound, the unemployment rate will increase significantly more with the rise of interest rates.

These rural regions were poorer compared to others from the start. The rise of the interest rates will push these peoples’ backs to the wall where incomes are the lowest. Starting here, a huge chain of inequality will start to spread all across the country as the Fed increases interest rates even more.