Surprising Price Of Pay Pressure

By Ted Dieck | Employers Intelligence - Compensation - Reviewed | Sep 4, 2010

How can I talk about pay pressure when there’s no earnings movement in sight?  Well, when the pressure’s on, money isn’t the only thing that moves.  Talent moves, too.

Do you wonder if maybe I’ve got the pay thing wrong?

I talk about rising pay pressures, and yet I also write about employers low-balling candidates.

So which is it? Is pay going up, or is pay going down?

First, I’ll give you the technical answer. (Which is “Yes, it’s going up.”)

Then I’ll give you a really cool perspective. You can decide for yourself what you see.

The Technical Answer

Technically, The Bureau of Labor Statistics is showing Average Hourly Earnings climbing at about 1.9%. The Employment Cost Index is similar.

So, yes, pay is going up, not down.

The Consumer Price Index went down last year and it’s not growing nearly as much as Earnings. Here’s the link, so you can do your own math puzzles…

BLS – U.S. Economy At A Glance

I’m going to conclude that Americans – when they have jobs – are receiving modest pay increases. And their pay is growing faster than the cost of the stuff they buy. That helps.

The Issue

Global growth. Inflation. And Taxes. Here we go…

When I talk about upward pay pressures, I’m initially thinking of the rising pay around the world. The emerging nations are emerging pretty darned fast. We’re not. Hard working Americans are going to begin wondering why hard working foreigners seem to be getting ahead, while we’re treading water.

I’m also assuming that there’s a cost to the Bernanke plan, where we print fake money until our debts are paid. For sure, our Fed Chairman doesn’t have much choice. And, while, printing fake money is illegal for you and me, the federal government likes to call it Quantitative Easing.

We commoners used to call it inflation, and being very polite people, we try not to mention words like “hyperinflation.”

Bottom line: One day, all prices will accelerate up.

The Fed dearly hopes to keep it under control.

And, finally, it’s entirely possible that taxes and government imposed benefits will come crushing down on Americans in a matter of months. Political arm wrestling continues over this one.

For now, I hold the assumption that in 2011, mystified employees will look at their paychecks and wonder where their money went.

If that isn’t a pay cut, it will feel like one.

And weird taxes will show up in the most unexpected places.

A week’s wages won’t cover a week’s expenses.

I expect that Americans will insist they should be paid more. And the spiral will ignite.

The more they make, the higher the taxes; because rich people, like the upper lower class, will have to pay their ever increasing fair share.

So, my summary: Rising global pay, U.S. inflationary pressures, and insane tax laws are all cued up to drive American compensation higher.

The Quandary

It seems to many of us that we aren’t exactly getting rich in this economy. There’s reason for concern that, at any moment, some government mandate will come out of nowhere and take our money or kill our jobs. And, although our grocery products cost about the same, the packages keep getting smaller.

That’s the beginning of the uneasy feeling I was just describing. These combined pressures have only just started to kick in.

It’s why I can predict pay hikes while we’re generally feeling kind of tapped out.

By first instinct, people might reasonably assume that rapidly rising pay might be kind of a fun experience. They might even associate it with greed.

I don’t see greed as the catalyst for my pay hike prediction. It’s fear. If the pressures start leaning in from every direction, and working Americans start screaming for more money to pay their bills; it’s because we will be stepping into the world of the Lowered Standard of Living.

Maybe folks will accept that.

I doubt it.

Instead, we get this weird conflict: Companies are trying to low-ball employees, telling them that times are hard, unemployment is high, and cost cutting is vital. Yet, companies are building enormous piles of cash, while their employees are scrimping to get by.

Pay is locked down, while profits are exploding. How long can that last?

The Shuffle Down

Two years of cost cutting have made corporations more qualified to compete than they have been in years… in a slightly demented way.

Many, many companies have cut staff to the point that they can barely deliver on their core expertise. It really is bad out there.

What is interesting to me is the way the cuts took place.

Many large corporations saw the financial collapse coming, and they took swift and decisive action. They made massive layoffs, without warning.

There wasn’t even a lot of consideration about who was to stay and who was to go. The cuts were made, and the money was saved.

As the workforce realigned, new hires found work by sliding down the food chain a step or two.

VPs found work as Plant Managers. Unemployed Plant Managers found work as Department Managers. Department Managers became Line Managers. Managers became Supervisors.

The entire Ripple Effect essentially moved the body of the work force a few notches down the hierarchy.

The result: Some companies, strangely enough, have seriously over-qualified people working in an array of positions, from top to bottom. The organization, itself, may be understaffed; but there is some killer talent toiling at unexpected levels of responsibility.

And Now My Wonderful Story

Imagine this… Decades ago, while I was in school, a friend of mine took me around Minnesota, so I could see what it was like.

This was the trip where I got out of the car, stood in a field, and realized that I could turn 360 degrees and never see a house, a building, a tree, not even a telephone pole.

In fact, being early winter, there were no crops. It was brown dirt and blue sky.

That was fun for about a minute. Then it got really creepy. We hopped in the car and got out of there.

Next stop was a small farm town. I’m pretty familiar with small farm towns, because my family comes from a little time warp in Michigan.

This Minnesota town was a bit different. It was way out in nowhere.

I got the full trip. We wondered around town, just looking at the granary, the rail sidings, Main Street, the shops, the bank.

Every once in a while, the guy taking me around would mention how strange it was that so-and-so, who had never done very well in school, had ended up running this company or that company.

In fact, he mentioned a number of times that low achievers had risen to positions of prominence in this tiny farm community.

Eventually, I had to ask the obvious question, “So, what happened to all the kids who had done well in school? The class leaders?”

“Funny,” he said. “They all left town.”

Brain Drain

People can also leave a country.  Here’s a link to my recent Recruiter’s View article about IT specialists leaving the U.S. for higher pay…

Brain Drain

It concludes with these comments:

“I constantly read how tickled people are that we can trash the U.S. dollar, making our work ‘seem’ less expensive, with the benefit of attracting more business into our country.

“Here’s the downside to that strategy: We really are working for less money. And we are inviting the smartest, best educated people to leave our country and go work for someone that pays better.

“I’ll leave you to consider where that leaves the rest of us.”