The conversations I’ve heard lately about the economy sent me down a research rabbit hole on the Cantillon Effect. I’ll share what I’ve learned then please tell us what you know.
The Cantillon effect explains why money is never neutral. When new money enters the economy, it doesn’t spread evenly. It flows first to certain industries like defense, healthcare, finance, and education. Workers and companies connected to these industries feel the benefits earlier. For example, more funding, higher salaries, and better job opportunities. But people on fixed incomes, salaried workers outside these sectors, and those relying on social programs feel the benefits last, if at all. Often, by the time the money reaches them, prices have already risen. In effect, they have less purchasing power than before. Understanding this dynamic can help you make better decisions about your job, your career moves, and your financial stability.
Why It Matters
It explains why some industries are hot and others stagnate.
When you see big hiring pushes or salary jumps in fields like healthcare technology, defense contracting, or fintech, that’s often a Cantillon effect in action. Those industries are closer to the new money. Meanwhile, other fields, especially those not directly connected to government contracts or major investment flows, may see slower growth.
It impacts your salary over time.
Even if you’re getting annual raises, inflation that hits after the first wave of money recipients means your purchasing power can shrink. You may feel like you’re working harder but falling behind financially.
It can influence layoffs and hiring freezes.
When new money stops flowing or shifts direction, industries further down the chain often get hit first. If you’re in a field far from these money sources, you may experience more volatility.
What It Can Look Like
Promotion and Raise Timing:
Colleagues in certain departments may get promotions or bigger raises faster than you because they’re tied to revenue streams boosted by new funding. For example, a sales team connected to healthcare clients may see rapid bonuses while you don’t.
Job Security:
If you’re a curriculum developer supporting education technology funded through federal grants, your job could feel more secure during times of economic uncertainty compared to your friend who works at a traditional publishing company.
Career Moves:
If you pivoted into cybersecurity for defense agencies after 2020, you are likely closer to “first money” flows. As a result, your salary is probably higher and your job more secure compared to your colleagues who stayed in less funded sectors.
What You Can Do
Pay attention to industry funding trends.
Stay informed about which industries are receiving large investments or government contracts. Sites like Crunchbase, Pitchbook, government spending reports, and business news can give you clues.
Choose employers carefully.
If you’re changing jobs, look at where the company’s revenue comes from. Organizations tied to heavily funded sectors are more likely to offer better raises and job stability.
Strengthen your negotiation skills.
Because salary bumps may lag inflation, you need to negotiate not just for raises but also for benefits that protect you. For example, stronger healthcare, remote work flexibility, and bonuses tied to company performance.
Keep your debt manageable.
Debt holders often benefit because inflation makes debt cheaper over time. But if you’re in an industry that’s slow to feel new money, you could get squeezed. Avoid overextending yourself.
Think two steps ahead.
Don’t just ask yourself, “Is this a good job today?” Also ask yourself, “Will this company/industry be close to new money flows two years from now?”
What do you know about the Cantillon Effect? Please share in the comments.