The idea is that they think of themselves as a labor monopsony. They are foreseeing an increase in supply (due to higher living costs forcing more people into t

The idea is that they think of themselves as a labor monopsony. They are foreseeing an increase in supply (due to higher living costs forcing more people into the labor market, either those not previously working or those who are now taking on second jobs) and thus plan to accordingly reduce the price (wages). The main fault in their reasoning is the belief that higher living costs necessarily results in more people getting into the labor market. At some point the marginal benefit to a worker becomes zero or negative, where higher living costs can actually result in a reduction in the labor pool. Whether we are at that point though, is not known yet without more information about the localized economy.