Companies Focusing More on New Hires

Due to the unyielding labor market, many companies in recent years have dedicated a substantial amount of money to recruiting new hires. According to The Conference Board, this has resulted in the sharp rising wages of younger workers. 

The Gap

The imbalance between spending on new hires and existing workers has created a historic pay compression. An analysis from The Conference Board has illustrated a gap between the wages of 20- to 24-year-olds and 25- to 34-year-olds recently declined to its smallest size in 36 years.

“With various pay transparency tools and websites at their disposal, existing workers have greater insight these days into what their colleagues who just came on board are earning,” said Frank Steemers, associate economist at The Conference Board. “If current workers perceive the salaries of new entrants as unreasonable compared to their own, companies can either brace for higher turnover or take steps to retain them, including raising their compensation.”

Frank Steemers, Associate Economist at The Conference Board

The Aftermath

The aftereffects of the Great Recession have caused many US companies to largely refrain from raising their salary-increase budgets. The findings come from The Conference Board’s Salary Increase Budget Survey, which queries compensation executives about their salary plans for the year ahead. Although salary-increase budgets did undergo a slight increase in 2019, they remain well below pre-recession rates.

The Culprit

Gad Levanon, the head of the Labor Market Institute at The Conference Board confirms the “stagnant salary-increase budgets [are due to] weak inflation and low cost-of-living adjustments.” This may explain why existing workers, as opposed to new hires, haven’t seen their wallets grow as expected.

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