How do companies get away with pay rises less than the rate of inflation?

Question

I understand that there are shareholders and costs increase, but surely the cost increases should be at the rate of inflation?

I know a load of companies increase by like 3.9% + Inflation every year – so why is it that when employees get pay rises they’ll always be less than the rate of inflation?

Doesn’t that just mean employees get poorer every time? Where does the extra 3.9% money actually go? Where does the difference between employees payrises and rate of inflation go?

Are all companies just screwing their employees or is there some other reason I’m not realizing?

In: Economics

Answer 1

>Doesn’t that just mean employees get poorer every time?

To answer this particular point: over the long run, in most countries, wage growth has outpaced inflation. That’s why in general people in the UK are wealthier now than 50 years ago, despite all the inflation in that time.

However it’s not uncommon for wage growth to lag behind inflation when it’s high and then outpace inflation when it’s low. That’s not a guarantee (in the UK we’ve just had a long period of low inflation and poor wage increases) but over the long-term it tends to happen.