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
Best way to think about this is to ask the opposite question: “how do companies get away with pay raises that *exceed* inflation?” (since that’s been common prior to recent inflation) or “why would employees accept a raise higher than inflation?” (since they’re taking money that could be given to someone else).
The longer answer is that wages and raises don’t correlate directly with inflation, rather they’re directed by market forces of which inflation is just one factor, just like the prices you pay for gas, or groceries are.
Employers seek to balance multiple forces, including the cost of their employees (and the costs to retain them rather than lose them to competitors), and the revenue those companies’ products and services bring in, which drives profits, which is the sole reason companies exist to begin with. As conditions change, including *forecasted* conditions, companies may tighten their belts, accepting the risk that they might lose some employees if other companies are continuing to offer more attractive compensation packages. During economic uncertainty, however, those competitors are often making the same calculations, and you end up with a market that just doesn’t support higher wages or raises.
There’s no good or bad here really (though there’s political incentive to say so), it’s market forces and human incentives at work.
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