In the previous blog, I talked about how wage increases have little to do with the soaring inflation this 2022. This debunks the fear that raising salaries will exacerbate inflation, known as the “wage-price” spiral cycle. Mary Daly, head of the Federal Reserve Bank of San Francisco, believes there is no proof of this phenomenon.
Inflation is decreasing as CPI in November is lower than in October and will likely continue to fall in 2023. This is good news, but this isn’t reflected in the pricing. Everything is still expensive — from purchasing a new home to buying dairy for breakfast. Inflation continues to have a significant impact on Americans’ purchasing power.
Without a wage increase, an American employee’s purchasing power continues to decline. The nominal value of their salary stays the same, but the real value isn’t. In return, employees become dissatisfied, unproductive, and forced to leave to find a higher-sustaining job. Given the current low unemployment and skill deficit, you would not want these scenarios to occur at your company. It’s high time you invest in your employees.
The inflation rate differs between industries, and so is how much you should raise. Nonetheless, an equitable wage increase boosts your employees’ value and retention.
Several reasons motivate employees to be productive — a positive environment, growth, work-life balance, and money. The latter seems to bear greater weight now because of inflation. When your employee receives a salary increase without promotion, it motivates them to keep working hard. It keeps them happy and feels valued for their hard work.
Again, with the current state of the talent market, which involves high skill mismatch, you would not want your company to suffer from high employee turnover. Yes, there’s a lot that drives an employee to stay, but the compensation may be at the top, given the soaring price of goods. With more money to spend, their purchasing power strengthens, and they see no need to find a higher-paying job or company.
An Edge Over Competitors
It’s crucial to analyze competitors and the market’s salary ranges. Other companies may not consider a pay raise due to profit concerns. With staff retention and productivity paying for the compensation rise, this move will convince them to stay with you instead of your competition.
Overall Standard of Living
Inflation hurts each and every one of us, but did you know that low-income individuals and people of color have it way worse? You’re giving special consideration to workers affected by inflation by giving them a fair wage increase. It will provide them with financial security, loyalty, and greater productivity.
Whether or not wages should be increased to keep up with inflation is a matter of debate. After all, inflation may or may not stay. When the latter happens, you can’t reduce salaries back. However, investing in your employee makes more sense when the salary increase is within the budget and would cost less than searching for a skill-match employee.
With evenly highly-paid employees feeling the bite of inflation, we recommend reviewing your compensation plans so as to retain the workforce you need to stay competitive.
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