There are a number of very relevant economic factors to consider when it comes to income and purchasing power: first of all, in the face of the strong inflationary push, by how much should salaries increase to be considered competitive?
How the job market has changed
Along with rising inflation, nationwide labor shortages have given workers a lot today more bargaining power than they traditionally had when the markets were weaker (here, for example, we told you about a sector at risk due to lack of personnel).
With the phenomenon of the so-called “major resignations”, and the Covid emergency which brought out the structural problems of the Italian labor market, the way people approach their profession has changed: flexible, sustainable and satisfying occupations are sought, both from an educational and remunerative point of view. Furthermore, there is a new awareness: there is – as already mentioned – a labor shortage evident in many sectors and, with inflation, for many it is justified to ask for more.
Now candidates are informed, they look around and see what the competition has to offer, then they turn to their employer, trying to get what they deserve (or which in any case appears to be in line with the average wages for that specific position ). If they don’t get it, they consider switching.
However, it is also true that at the moment we have two recurring and – in many respects – also paradoxical narratives: because if on the one hand there are many unemployed looking for work, on the other there are more and more companies that claim they cannot find personal? The data, in both cases, do not lie, but demonstrate that there is one skills mismatch between jobseekers and career opportunities.
Demographic trends are another part of the problem. The CDs. baby pensioners have left the workforce faster than young people enter it, which does not facilitate turnover, and creates an unsustainable hole for the state coffers (but this is another story, to deepen: of the problem that Italy has pensions we had already talked about here).
By how much should salaries go up?
Those who have decided to change jobs during or after the Covid emergency, in fact, have not made this decision just for a question of money. The pandemic has led many to reconsider their liveshence the need to aim for more sustainable work and in line with one’s personal needs (and the increasingly high demand for remote work).
But then war and economic instability set in, prices started to fluctuate and inflation continued to fuel the risk of a major recession. THE money, therefore, has once again become an important factor. Inflation is pushing up food and fuel prices to levels that some find impossible. For many, therefore, the only option is to ask for an increase in salary, such as to cushion the blow, or still to look for a job – different from the current one – that guarantees greater income.
Ma by how much wages should go up to be able to cope with the inflationary pressure? Rising inflation means the value, or spending power, of paychecks is declining.
Any annual increase at or below the current rate of inflation is, in real money terms, a reduction in salary. In practice it means that the more inflation increases, the more the spending power of the salary decreases. Following the indications of the Office for National Statistics, with inflation in Italy registering an increase of +11.6% in December 2022, for every 100 euros of salary the increase should not be less than 111/112 euros to be considered competitive (or in any case such as to make the salary acquire the same pre-surge value as the prices).
How inflation affects wages and salaries
Does this mean that all companies, over time, will recognize a raise for their employees? Answering this question is not easy, perhaps because it is better to change perspective. First of all, it is probable that the most skilled workers – i.e. the most sought-after professional figures – will have the greatest opportunities for wage growth (and therefore will ask and get more). Companies could have more budget for salaries, bonuses and various benefits but only to retain and attract the best talent
From the ECB’s point of view, it is fortunate that the practice of link wage increases to the rate of inflation is less common in Europe today than it was in the 1970s. Inflation is rising at an annual rate of 7.5% and the bank is desperately trying to avoid a spiral in which higher consumer prices generate higher wages, which further raise the price of goods and services (the employer, somehow, tries to recover the amount spent on higher salaries: therefore increases the cost of the service it offers).
Various companies, for example, often insist on indexing clauses, which allow them to pass on raw material price increases and other costs to their customers. Regulated utilities, telecommunications companies and commercial real estate providers are particularly good at this. However, workers, not companies, bear the brunt of inflation.
Perhaps, in the meantime, stricter antitrust enforcement can help correct the imbalance between businesses that have too much pricing power and workers that have too little.
