The ripple effects of the pandemic are still reverberating throughout the world and deeply affecting the American workplace. When the world shut down in March of 2020, the employment game was changed forever. Many employees realized that the grass was greener on the other side, and they went to tend new gardens, commanding a higher paycheck than people who were already there. What was once a hallmark of a good employee, being dedicated to the same company for decades, is now slowing down one’s earning potential. For those workers who have recently jumped ship, the paycheck is higher, but with a recession looming, will they be the first to go if things get tough for a company?
Pay Differentials
Businesses have to fill their employee roster, so they have been forced to increase salaries. According to Business Insider, salaries for new hires average 7% more than the median pay for people already employed in similar positions. In some sectors, however, the pay differential is even more pronounced. For IT managers, for instance, the gap is 20%, and for database developers, 13%. Companies like Microsoft are being forced to deal with this dynamic, though they have the money and manpower to do so. Microsoft announced last week that it is nearly doubling its payroll budget and handing out bigger raises, starting in September. This was announced early to keep employees from jumping ship, as the grass is greener at Amazon, which recently more than doubled its base salary. Unfortunately, it is smaller companies who are really paying the price.
“Almost every company out there is in one way or another having to deal with this dynamic,” Jay Denton, the chief labor market analyst at LaborIQ, said. “Companies are struggling across the board. They’re playing catch-up.”
This phenomenon is known as salary compressions: when the pay gap narrows between newcomers and veteran employees. This is a negative trend, as veterans generally should make more than newbies. And when newcomers get paid more than the veterans, that is a salary inversion, a phenomenon that many employees are experiencing right now.
These trends were part of the reason why in March, a record 4.5MM Americans quit their jobs. And now inflation continues to push the numbers higher, with people trying to receive the pay increase that comes with a new job.
Business Insiders reports that “In April, the wages of job switchers rose 5.6% from a year earlier, compared with a 4.2% increase for job stayers. That difference of 1.4 percentage points is the biggest since the dot-com bubble in 2001. It’s so big, in fact, that switching employers makes all the difference in whether your pay has kept up with inflation. In the first quarter of this year, the Fed’s preferred gauge for prices rose 5.2%.”
The Bloodletting is Real
Employees understand the problem. A recent survey found that “56% of C-suite executives acknowledged having pay discrepancies between new and existing staff members. Of those, nearly two-thirds said they were planning to conduct regular pay audits and adjust salaries to close the gaps.” Unfortunately, audits are not done on a consistently frequent basis.
Although it is true that newly hired employees seem to be getting the best deal, the looming forecasted recession may have you thinking twice before you move jobs.
Four million workers left their jobs in April in the U.S. alone, just shy of the record 4.5 million who resigned in March. And still more plan to join the hoards over the coming months, as they seek out higher salaries, more flexible arrangements, and new challenges.
A recent Deloitte survey said that nearly a quarter of millennials (24%) and two in five Gen-Zers will leave their current job by next year.
“In almost all cases, employees should be a bit hesitant to resign. It’s a big decision, and it is often not easy to weigh up all the pros and cons. A potential economic downturn makes that calculus even more difficult,” Anthony Klotz, a professor at Texas A&M University who coined the phrase “The Great Resignation,” told CNBC Make It.
And in a climate that seems headed toward a recession, getting a brand-new job when the company may be forced to make cuts in order to make ends meet is a bad idea. “There will be some employers who will follow the rule of ‘last in, first out’ — meaning that the last employees to be hired will be the first to be let go — should layoffs become necessary,” Amanda Augustine, career expert for TopResume, said.
Contractors especially should be wary. The sand is shifting and if you are making a change, there are many risks and rewards to consider. “During layoffs, contractors tend to be most vulnerable,” Julia Pollak, chief economist at jobs site Zip Recruiter said, highlighting their typical detachment from a business and resultant lack of benefits like severance and health coverage.
Proceed with Caution
The balance is already starting to change, and for employees interested in jumping ship, they may have missed the window. Inflation in the US rose to 8.3% in April, and the Federal Reserve responded by raising interest rates by half a percentage point. The Fed is expected to increase it again, which will result in increased borrowing costs. Most experts agree that this is likely to trigger a recession.
“I don’t know whether it will be a soft or a hard landing,” Coram Williams, finance chief of the Adecco Group, told Insider. “But it’s clearly going to take some of the froth out of the world economy. And that means that you have some aspect of rebalancing within labor markets, which probably shifts the pendulum slightly back towards the employer.”
No one knows for sure exactly how far the apple cart will tip, and at this point, every choice seems like a risk. But with the global supply chain in tatters, a war overseas, gas prices through the roof, and a lingering pandemic, it is true that change is the name of the game in this market.
Ravin Jesuthasan, global transformation leader at Mercer, told Insider: “These concepts of flexibility are here to stay, it’s just not going to go. I know many hope we’ll just go back to where we were in January of 2020, but that’s just not going to happen.”
Each employee has to do what is best for himself or herself, whether that means holding on to their job through what many will say is a recession, or setting off into uncharted territory. At the end of the day, each person must treat the great resignation as their own private re-evaluation, to choose their own track through these unprecedented times.
