What are the causes for pay raises in companies for their employees? Is there any role of competition between these rivals, or do they take care of their employees?
Sainsbury has increased the per hour wage of its employees from £10.50 to £11.05 per hour. In the same way, Tesco, the biggest employer in the UK, has stated that the minimum wage per hour has been increased from £9.55 to £11 an hour. These raises in the pay per hour have increased speculations while many people are arguing the possible causes for these raises. The average pay raises this year are considered to be more than 3% higher in the current year; however, this raise is not very big when compared to the raises of the past. The rise in hourly wages comes with the rise in inflation. The Compensation Best Practices Report (CBPR) reported that more than forty-four companies are planning to raise their pay scale by 3% this year. But still, when the rise in the average price of commodities is calculated, these pay raises fall short. The high rate of inflation is the first cause of pay raises in the companies. The next significant cause which contributed to the pay raise was the great resignation of the workers, which forced the employers to raise the average salary of the employees. Moreover, the shortage of workers also caused a spike in competition between the companies, whereas there is less evidence to declare that the pay raise of labor is due to the increased rivalry between the companies for the labor force. On the other hand, many companies have declared that they really care for their employees, and therefore, they raised the employees’ wages. Therefore, the above-mentioned causes are collectively playing a role in the increased wage of employees.
The rise in pay is good news for employees. But the bad news about the rise in inflation, which is higher than the average rise in pay, is affecting the employees badly. It means that the rise in the average pay per month doesn’t mean that the employee can buy more groceries this year as compared to the last year. In fact, the lockdowns and the effects of pandemics have caused inflation more than last year. The inflation has caused a price hike in items and services. The average price hikes this year is about 7.9% higher than it was last year. The main hiked items are fuel, food, and rent. It means that this hike has to be borne by the low to middle-class working people. Furthermore, this inflation is expected to get worse in the coming times due to the Russian war in Ukraine and the expectation of a rise in gas prices with it. Reports reveal that the average increase in wages in February 2022 is 5.1% high as compared to the average wage in February 2021. However, when the wages are readjusted according to the rise in inflation a 2.6 percent decline is observed.
The next significant cause of the rise in pay scale is the unavailability and shortage of workforce over the last few years. The organizations are forced to pay according to the cost of living rather than the cost of labor they consume. The absolute reason is the skewed labor force due to many reasons. A study conducted by Mercer states that more than 50 percent of organizations are paying more than the average market rate. The obvious reason is the difficulty in finding and retaining the employees. Moreover, about 41% of the organizations say that they are paying the sort of bonuses to keep the employees with them. The ‘Great Resignation’, a term coined by a management professor at Texas University, has added fuel to the fire. The data shared by the U.S. Bureau of Statistics reveal that around 4 million Americans left their jobs back in 2021 without any pressure or force from the company. Many organizations have flattened their working hours as they are unable to find the workforce. Gas stations, superstores, or dentists are forced to skew their working hours. The pandemic, in the same way, further escalated the situation.
The argument that the rising competition between the firms leads to an increase in the minimum wage of a worker stands shallow. The less skilled worker faces the real burden. They have to work as much as they can, and the companies pay them as minimum as they can. The age-old belief that the labor markets are competitive is fading away with new research. The competitive labor market would have forced the employers to vie for the workers. The increase in the workers’ demand would increase their bid and, consequently, the increase in benefits and wages, which is not the case. The growth of the economy over time does not shape the competition in the labor force. Instead, studies reveal that employers have devised new methods to suppress competition in the labor market. The studies reveal that the establishment of the old company town in the new version is observed. Company town refers to the historical events where companies established living towns adjacent to their factories where the employees live. Due to the single company ownership, they didn’t have any choice as well as competition in the labor force. So, the employer was free from any competition at the labor’s end and paid what he deemed enough for them. By 1970 the power of labor unions and regulations also eroded due to trending globalization, new innovative technologies, and the heterogeneous labor force further diminished their power. These unions were once a great source of power on the labor’s end, which often stood for their rights and benefits.
In a nutshell, there are several causes that have played a role in increasing the minimum wage for the employees. The first most effective cause is the rising inflation day by day. Although the upsurge in inflation does not fall in line with the rise in pay, inflation has forced companies to raise the minimum pay of their workers. The skewed availability of labor and the resignation of skilled force is the next significant factors that caused to rise in the minimum wage. The declined competition in the labor force suggests that rivalry between companies to retain labor has little role in pay raises. In the end, companies intend to care for their workforce as they know that satisfied workers can ensure customers’ satisfaction.
