Impact Of Lower Interest Rates On Employers

9th September 2016
Geoff Collings
Kent

When banks offer low interest rates it has an effect on employers of all sizes. Lower interest rates affect everybody, from employers to individuals. When there are more purchases than normal it puts a strain on businesses and their normal operations. When sales increase, employers have to hire more workers to make the products they sell.

Lower Rates Mean Bigger Purchases

Businesses will look to make large purchases themselves when interest rates are low. This means that business expansion is quite normal.

Most employers will take advantage of a low interest rate by:

  • Buying more equipment;
  • Taking out loans to increase the size of the business or capacity of the business;
  • Hire new employees;
  • Increasing lines of credit;
  • Rolling out new lines of products that require financing to create;
  • Borrowing heavily from the bank.

Knock On Effect Of Low Interest Rates On Employers

When every business has the chance to expand their operations like they do when interest rates are low, there is a surge in the availability of jobs. This is basic supply and demand – in order for the employers to attract new workers and maintain the workforce that they have, it is necessary for them to review the salary and benefits package that they offer their employees.

This means that:

  • Employers will likely end up increasing the hourly rate of pay for all hourly paid workers in order to get them to keep their jobs. They will also look to increase the wages of those employees who are on salaries.
  • Employers will add new benefits to their employment package to attract new workers. Offers might include time off with pay, an extra day’s pay per month or even a monthly gift card to a local grocery store.
  • Employers will hire new management to supervise the growth of the business and all the new employees that are being hired.
  • Employers may also look to outsource some of their functions in order to decrease the pay or benefits that they would otherwise have to offer an employee for work. Jobs and duties might be broken up to maximise efficiency of the business and some of the functions like administration, accounting or billing might be outsourced in order to concentrate on the smooth operation of the main work force.

Prices Are Lower

When interest rates are low and businesses produce more products to meet the high demand, it is natural to see a price drop occur as competition rises. Employers are constantly forced to reconsider their earning potential and profits in relation to the price changes and must watch the market to ensure that they do stay competitively viable in terms of costs as compared to their closest competitors.

Conclusion

One thing that is certain about employers when interest rates are low is that there will be a lot more opportunity available. This will mean that employers will look to the future and the growth of the company through expanding their base, buying new equipment and hiring new workers.