Rising interest rates have prompted a resurgence of stories of “loyalty tax”* – the extra money that loyal customers end up paying for loans, insurance and energy over the deals offered to those who are willing to switch banks/insurers/energy companies.
But there is a bigger and more widespread “loyalty tax” that millions of Australians pay every week: the income they lose by being loyal to their employer, but unwilling to change jobs.
And some of us pay extra on top of that, what I’ll call the “sweet tax” – what we give up by not asking for a raise.
Over the past decade, when the Reserve Bank was very keen to see higher wage growth, the governor explicitly advised people to change jobs. It was the surest way to increase your salary.
In addition to government policy to suppress wages and the erosion of employees’ bargaining power, Australians’ waning willingness to change employers has been cited as one of the factors behind the growth in substandard wages over the past of the last decade.
Now that inflation is catching the attention of the RBA, the governor isn’t campaigning for higher salaries, but his pre-inflation advice still stands. As stated here earlier, if there is a new recruit doing the same job as you, chances are the recruit will be paid more than you.
But there are encouraging signs that the pay loyalty tax could come down, thanks to growing pressures from low unemployment and a shortage of skilled workers in many industries.
Exhibit A for the prosecution is a study by the University of Melbourne alleging that not only has the loyalty tax gone down, but people who don’t switch jobs now get bigger pay rises than those who do. make.
Unfortunately, I do not believe the conclusions of the study. It’s based on perceptions of salary increases and I don’t trust what people tell surveyors when it differs from harder statistics and common sense.
For example, as reported in The conversationthe Melbourne Institute survey found that people expected to get a pay rise of less than 1% over the next year, whether or not they changed jobs.
Pessimistic respondents talk about money here, not “real” after wage inflation. Times are tough for real wage increases – we’re backing off after inflation – but all the alternative data indicates that those polled have no idea.
(If we could believe them, if they were right about their miserable outlook, the RBA might stop raising interest rates immediately, because we clearly aren’t facing a wage spiral.)
Exhibit B seems more believable to me, though limited to a few industries booming in their demand for workers.
Recruiter Robert Half’s latest salary guide reveals nearly all IT and finance business leaders are increasing their salary budgets this year by an average of 20%, with some of that increase coming from the smartest bosses realizing that they have to pay existing staff more. to prevent them from being poached.
Yes, the IT and finance industries are not typical of the broader workforce. These are generally not the kind of jobs given the collective bargaining debate that was featured at the Jobs and Skills Summit.
Nevertheless, the trend is encouraging.
Robert Half director Andrew Brushfield said the talent gap was pressuring employers to raise starting salary offers and candidates were increasingly aware of their bargaining power.
“These bonuses are often around 20% but reach 30% or more for niche or specialist skills related to digital transformation such as data analytics, cybersecurity or financial planning and analysis,” said Mr. Brushfield.
“While challenges to securing talent put upward pressure on new hire salaries, this raises pay equity concerns, with growing pay gaps between new hires and more tenured staff over the course of the last year.”
Ah yes, the loyalty tax. The good news is that the smartest employers are realizing the inequity.
“Employers fear losing permanent talent to a headhunter – and the inflated costs to fill these positions – are therefore increasing their overall salary budget by an average of 20% to bridge the gap between current salary and bonuses. proposed salaries with a change of job.
The survey also showed a strong difference in wage increases by company size. Small businesses on average expected a 10% increase in payroll costs, about half the increase of medium-sized businesses and a third of larger businesses.
Let me repeat that these industries are not typical of the nation, but that makes two other aspects of the survey even more noteworthy:
- One in five employers do not expect their employees to ask for a raise.
- While 96% of employers are willing to give raises, most of them (63% of 96) “will only give raises to those who ask for them”.
- Only a third of employers will give raises to employees who don’t ask for them.
What I find absolutely extraordinary is that the survey reports that only 44% of workers plan to ask for a raise by the end of this year, but 78% say they are likely to “seek a new role” if they don’t. t get a raise.
What a sweet, sweet lot we have become, hence the “sweet tax”.
The moral of the story is to ask for a raise. If you are outside the allotment or ABE system, chances are your employer will otherwise let you pay both fair and soft taxes.
*When I started writing about the phenomenon at the beginning of this century, I called it the “lazy tax,” the cost of being too lazy to shop. It seems to have been renamed “loyalty tax” so as not to offend people.
