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Not to be dismissive, but why would a company specifically care about some arbitrary number called "inflation" vs overall pressure from the labor market, which

Not to be dismissive, but why would a company specifically care about some arbitrary number called "inflation" vs overall pressure from the labor market, which presumably must have some encoding of that, considering they seem to clearly paying a person enough not to justify leaving? P.S. It is especially amusing considering lots of "only if I were to leetcode I could increase by X" coexist with many posts that diss on leetcode and whine that it filtered them out and it is not "relevant to the work they are doing". Perhaps the system is working then?

deleted 5y ago
[deleted]
xupybd 5y ago
They wouldn't but they should be aware that inflation will put pressure on the labor market. People will leave if they are underpaid.
jurassic 5y ago
I somewhat agree. Tech comp seems to be up a lot more than inflation and I’m sure it’s going to lead to a lot of churn.
kaczordon 5y ago
Inflation is also psychosocial. If people think inflation is happening they will want to be paid more. That’s what can cause a wage-price spiral, partially.
- xapata 5y ago
  Wages are prices. A wage is the price of labor. When wages increase, inflation is happening, by definition.
  - somebodythere 5y ago
    The price of labor can increase faster than the price of goods increases. This is usually what people refer to when they talk about the development of a country's economy, or a country getting "richer".
softwarebeware 5y ago
Why do you think inflation is an “arbitrary number?” I can’t imagine what gave you that idea.
- mehrdada 5y ago
  > I can’t imagine what gave you that idea. I can't imagine it being that hard to imagine :) considering this is the second paragraph of wikipedia[1]: Prices will not all increase at the same rates. Attaching a representative value to a set of prices is an instance of the index number problem. The consumer price index is often used for this purpose; the employment cost index is used for wages in the United States. Differential movement between consumer prices and wages constitutes a change in the standard of living. [1]: https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation
  - softwarebeware 5y ago
    So…not an arbitrary number.
    - mehrdada 5y ago
      Precisely as arbitrary as how you choose to measure it, or more.
      - ethanbond 5y ago
        Considering that, say, 100% of tech employees are consumers and CPI measures cost increases for consumers, it may be “arbitrary” but still highly relevant.
        mehrdada 5y ago
        For instance, if my employees are earning 500k+ and driving Teslas, I don't think the price of oil, lettuce and tomato, and even general rental market would be materially impactful like, say, the increase in Los Altos home prices. What really makes a difference is how much a competitor is willing to pay, their scale, their work environment, and how well they sell themselves.
PragmaticPulp 5y ago
> Not to be dismissive, but why would a company specifically care about some arbitrary number called "inflation" vs overall pressure from the labor market, which presumably must have some encoding of that, considering they seem to clearly paying a person enough not to justify leaving? You hit the nail on the head. Everything related to compensation becomes much less confusing once you accept that hiring is a market. Like any market, supply and demand drives the prices. Nothing else matters much. Big companies have entire teams dedicated to compensation which are separate from HR and hiring managers. They carefully track these details and will fine tune their rates up and down depending on how often their offers are accepted or rejected. If every candidate is accepting the offers, they're probably too high and can be adjusted downward. If the company can't close any good candidates because they're going to other companies, it's time to raise the rates. Of course, not every company plays this game correctly or intelligently. If the OP's company has guessed wrong and gave too low of a raise, they risk losing too many people. On the other hand, if most of the employees shrug it off then maybe they made the right call for the business.
- BLKNSLVR 5y ago
  Do markets and inflation not go hand-in-hand, although sometimes slightly out of step, like I thought they did?
  - garettmd 5y ago
    There's also the fact that the "inflation rate" is a pretty imprecise number. There's no real inflation rate, it's more of an average of the price increases of various sectors of the economy. But even drilling down into the sectors you have to account for things like geography. So the inflation rate is useful as a gauge for where the economy at the macro level is heading, but for making individual salary decisions at a single company it's not very helpful.
  - jshen 5y ago
    Depends on the demand for your skills, not generic inflation.
  - 5y ago
astrange 5y ago
The larger problem is that giving everyone inflation-linked raises causes inflation in the first place; that's called a wage-price spiral. That's one reason raising interest rates stops the inflation, it gets enough people laid off that the rest of the raises are absorbed. Unfortunate really.
phantomathkg 5y ago
Inflation is not arbitrary. To some extent this should be like the minimum a company should offer. If not, it means the money you bring home might not be able to cover all your expense + saving.
- mehrdada 5y ago
  Let's say you earn 500k and your cost of living is 200k leaving you with 300k additional disposable income. Assuming a 7% increase in your cost of living, you still have $300-$200*.07 additional disposable income. The question now is, why should the company be the one absorbing this loss and not the employee selling the labor, to put it bluntly, let alone adding an extra 7 percent to your extra $300k? Even if they are able to pull a price increase, they will be under pressure by shareholders to keep the profits to preserve the share price to offset the collapsing multiples. Surely at the borderline compensation levels or below, cost of living increases can make a material difference to the employee's ability of providing their services in the first place, out of their control (analogous to a negative gross margin for a vendor), and force them into pursuing an alternative solution (reducing expenses, moving to a different location, moving to a different industry). However, if the employees are significantly above that limit, the primary reason the employee is able to justify their additional earnings must be competition in the labor market, so that should be the driving factor here as well.
  - tkiolp4 5y ago
    The company doesn’t have to… unless the employee decides to leave for that reason. Now adding an extra 7% is not about inflation but about retaining (good) employees. I imagine that for bad or not good enough employees, the decision is rather easy for companies: let them go.
    - mehrdada 5y ago
      > Now adding an extra 7% is not about inflation but about retaining (good) employees. Sure, and that distinction is the entire point, i.e. retention for [Silicon Valley and similar] tech employee is likely not dominated by the value of 7% but what the labor market dictates in terms of compensation, benefits, and company culture; could be a lot higher but by-and-large not directly driven by consumer price increases.
serial_dev 5y ago
> some arbitrary number called "inflation" vs overall pressure from the labor market They should in the end only care about market pressure, but there is connection between the two. The way I see it, if you are a new hire, companies pay you more to get you, so they stay ahead of the inflation and keep up with market rates. If you want to stay, a company's reluctance to keep up with inflation (and the market) will make it a very hard decision, even if you like the job, the people and the company.

deleted 5y ago

[deleted]

xupybd 5y ago

They wouldn't but they should be aware that inflation will put pressure on the labor market. People will leave if they are underpaid.

jurassic 5y ago

I somewhat agree. Tech comp seems to be up a lot more than inflation and I’m sure it’s going to lead to a lot of churn.

kaczordon 5y ago

Inflation is also psychosocial. If people think inflation is happening they will want to be paid more. That’s what can cause a wage-price spiral, partially.

xapata 5y ago
Wages are prices. A wage is the price of labor. When wages increase, inflation is happening, by definition.
- somebodythere 5y ago
  The price of labor can increase faster than the price of goods increases. This is usually what people refer to when they talk about the development of a country's economy, or a country getting "richer".

softwarebeware 5y ago

Why do you think inflation is an “arbitrary number?” I can’t imagine what gave you that idea.

mehrdada 5y ago
> I can’t imagine what gave you that idea. I can't imagine it being that hard to imagine :) considering this is the second paragraph of wikipedia[1]: Prices will not all increase at the same rates. Attaching a representative value to a set of prices is an instance of the index number problem. The consumer price index is often used for this purpose; the employment cost index is used for wages in the United States. Differential movement between consumer prices and wages constitutes a change in the standard of living. [1]: https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation
- softwarebeware 5y ago
  So…not an arbitrary number.
  - mehrdada 5y ago
    Precisely as arbitrary as how you choose to measure it, or more.
    - ethanbond 5y ago
      Considering that, say, 100% of tech employees are consumers and CPI measures cost increases for consumers, it may be “arbitrary” but still highly relevant.
      - mehrdada 5y ago
        For instance, if my employees are earning 500k+ and driving Teslas, I don't think the price of oil, lettuce and tomato, and even general rental market would be materially impactful like, say, the increase in Los Altos home prices. What really makes a difference is how much a competitor is willing to pay, their scale, their work environment, and how well they sell themselves.

PragmaticPulp 5y ago

> Not to be dismissive, but why would a company specifically care about some arbitrary number called "inflation" vs overall pressure from the labor market, which presumably must have some encoding of that, considering they seem to clearly paying a person enough not to justify leaving? You hit the nail on the head. Everything related to compensation becomes much less confusing once you accept that hiring is a market. Like any market, supply and demand drives the prices. Nothing else matters much. Big companies have entire teams dedicated to compensation which are separate from HR and hiring managers. They carefully track these details and will fine tune their rates up and down depending on how often their offers are accepted or rejected. If every candidate is accepting the offers, they're probably too high and can be adjusted downward. If the company can't close any good candidates because they're going to other companies, it's time to raise the rates. Of course, not every company plays this game correctly or intelligently. If the OP's company has guessed wrong and gave too low of a raise, they risk losing too many people. On the other hand, if most of the employees shrug it off then maybe they made the right call for the business.

BLKNSLVR 5y ago
Do markets and inflation not go hand-in-hand, although sometimes slightly out of step, like I thought they did?
- garettmd 5y ago
  There's also the fact that the "inflation rate" is a pretty imprecise number. There's no real inflation rate, it's more of an average of the price increases of various sectors of the economy. But even drilling down into the sectors you have to account for things like geography. So the inflation rate is useful as a gauge for where the economy at the macro level is heading, but for making individual salary decisions at a single company it's not very helpful.
- jshen 5y ago
  Depends on the demand for your skills, not generic inflation.
- 5y ago

astrange 5y ago

The larger problem is that giving everyone inflation-linked raises causes inflation in the first place; that's called a wage-price spiral. That's one reason raising interest rates stops the inflation, it gets enough people laid off that the rest of the raises are absorbed. Unfortunate really.

phantomathkg 5y ago

Inflation is not arbitrary. To some extent this should be like the minimum a company should offer. If not, it means the money you bring home might not be able to cover all your expense + saving.

mehrdada 5y ago
Let's say you earn 500k and your cost of living is 200k leaving you with 300k additional disposable income. Assuming a 7% increase in your cost of living, you still have $300-$200*.07 additional disposable income. The question now is, why should the company be the one absorbing this loss and not the employee selling the labor, to put it bluntly, let alone adding an extra 7 percent to your extra $300k? Even if they are able to pull a price increase, they will be under pressure by shareholders to keep the profits to preserve the share price to offset the collapsing multiples. Surely at the borderline compensation levels or below, cost of living increases can make a material difference to the employee's ability of providing their services in the first place, out of their control (analogous to a negative gross margin for a vendor), and force them into pursuing an alternative solution (reducing expenses, moving to a different location, moving to a different industry). However, if the employees are significantly above that limit, the primary reason the employee is able to justify their additional earnings must be competition in the labor market, so that should be the driving factor here as well.
- tkiolp4 5y ago
  The company doesn’t have to… unless the employee decides to leave for that reason. Now adding an extra 7% is not about inflation but about retaining (good) employees. I imagine that for bad or not good enough employees, the decision is rather easy for companies: let them go.
  - mehrdada 5y ago
    > Now adding an extra 7% is not about inflation but about retaining (good) employees. Sure, and that distinction is the entire point, i.e. retention for [Silicon Valley and similar] tech employee is likely not dominated by the value of 7% but what the labor market dictates in terms of compensation, benefits, and company culture; could be a lot higher but by-and-large not directly driven by consumer price increases.

serial_dev 5y ago

> some arbitrary number called "inflation" vs overall pressure from the labor market They should in the end only care about market pressure, but there is connection between the two. The way I see it, if you are a new hire, companies pay you more to get you, so they stay ahead of the inflation and keep up with market rates. If you want to stay, a company's reluctance to keep up with inflation (and the market) will make it a very hard decision, even if you like the job, the people and the company.