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The Wage Spiral Problem – Computerworld

Increasing wages can create a more competitive situation for employers.

Last year, the companies decided to increase wages higher than planned, but the employees generally expected a higher amount. In order to retain the workforce, companies often raised wages and benefits twice or not infrequently three times in 2022. How should employee engagement be improved in the current situation? In what form should employers respond to the increasing burdens of employees? – the Profession.hu Backstage podcast seeks answers to these questions, among others fresh broadcast.

Roughly eight out of ten Hungarian companies implemented some form of wage improvement last year. No wonder, since this is the strongest motivating factor among employees when changing jobs. Increasingly frequent wage increases can intensify competition between companies.

The problem of the wage spiral

As security and stability become more and more a priority for employees, an increase in the basic salary is most often considered satisfactory – it was revealed from the research carried out by Profession.hu in February 2023. “Increasing basic wages is the riskiest form of compensation from the point of view of companies, because it often means a long-term commitment: if a company exceeds the increase, it must continue to count on this expenditure, and in most cases, the answer to its replacement is a price increase – thus consumers’ spending also increase, which increases the employee’s demand for additional wage compensation. Non-salary or one-off financial benefits provide companies with much greater flexibility in the future, they are easier to change, but they can have a significant impact on the well-being of employees if the employees are basically satisfied with the basic wages.” – said Lili Simon-Göröcs, HR director of Profession.hu.

By increasing basic wages, an involuntary competition between employees can start: as different workplaces offer higher and higher salaries, employees more easily decide to change and leave their original workplace because of the higher wages. This can put larger companies in an advantageous position and lower income companies in a disadvantageous position.

The proper form of lifting

It is important for employers to think about what their goal is when choosing the form of the raise. If retention and recognition of results is the goal, then differentiation based on wages is justified. However, when it comes to compensation in response to inflation, the former scenario is less relevant. Since the current economic situation affects all employees uniformly, many companies have introduced proportional increases, and lump sum benefits have become more and more common.

It is also not necessarily a profitable strategy if the employer provides a significant salary increase or benefits to the employees, while not putting sufficient emphasis on other motivating factors. In this case, the employees may earn above average and probably won’t change jobs, but they may feel unmotivated in the given situation, and it costs the company a lot. It is therefore worthwhile to place an appropriate emphasis on the other motivator factors in relation to the opportunities provided by the given situation.

Transparent wages

Making wages transparent can be beneficial not only for companies offering above-average pay packages. Salary has become increasingly important in recent years for employees when looking for a job. Even today, situations where the salary package remains hidden until the end of a multiple-round job interview are not rare, even though both parties could have saved significant resources by knowing this in advance, and in most cases the salary range placed in the job advertisement also has a good effect on the number of applicants.

A higher wage can provide the employee with basic security needs, cover needs, and the possibility of relaxation and development, but it cannot replace, for example, self-realization or the increasingly important social needs.

“From our previous research, it became clear that there are special situations when salary is pushed back on the list of motivating factors. Often, a change in the mental or physical environment causes a problem. During the pandemic, for example, more than six out of ten of those who changed did so because of the change in environment “: the work environment, interactions and relationships with both colleagues and managers have changed. In this period, burnout was indicated in more than half of the cases, which is also not a financial problem,” said Blanka Dencső, Market Research and Business Development at Profession.hu expert.

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