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The Truth about Your Crumby Pay Increase

The other day a friend of mine was talking about how their employer has given them a yearly raise of 4%, which means because of inflation, they are making less than they made last year. Their company said this is all they can afford, citing the recession. This same company 2022 Q2 earnings report says:

“Orders for the second quarter climbed 32% year-over-year, reaching €21.0 billion on double-digit increases in all industrial businesses, while revenue rose 16% year-over-year, to €17.0 billion”

Can’t afford it huh?

The debate seems to be over, the EU is in a recession and the US is just behind. In real life, I can feel it. People are tightening their belts and canceling things which are deemed too luxurious: dog walkers, that extra restaurant outing in the week.

As we average workers reduce our spending, the corporations citing pandemic pains and recession fears, are also racing to save their profit margins. We’re already seeing massive layoffs, hiring freezes and measly raises, if any. Yet, the facts are there, corporate profits are up and the gap between CEO pay and employees keeps rising dramatically.

Workers have not had an increase in wages in 40 years. While the world’s richest’s wealth has increased dramatically in that same time frame.

And while the purchasing power is what is being examined in these statistics, we need to also look at the ability to purchase a home. As equity from home ownership is one of the most important economic tools the middle class has.

“In the last decade, the median home price rose roughly 30% and incomes crept up just 11% over the same time period..Over 50 years, the difference is even more striking. After accounting for inflation, home prices have jumped 118% since 1965, while income has only increased by 15%

Corporations and the top richest people are making record profits on the backs of their employees, who struggle further and further each year to make a real living wage. Let’s look at some facts.

“Market power of firms also helps to explain why profits have risen: they’re up around 60% in real terms in 20 years, compared to growth in workers’ real wages of about 14%.”

“But despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.”

CEO pay has recovered to pre-pandemic levels for instance. But for the majority of workers, higher price inflation is now eroding the real value of what they earn.”

Don’t be fooled, this is done on purpose. As an HR professional, it has often been a part of my role to evaluate and participate in analyzing and setting strategy for what is called the Payroll to Revenue Ratio, where companies explicitly try to create a return on their “payroll investment”. Aiming to spend 15–30% of their revenue on payroll. Executive leadership is incentivized in bonuses for reaching this metric.

In short; Leadership earns more money when you earn less.

This all doesn’t only apply to corporations. Health care, educational institutions and even non-profits (specifically philanthropically funded ones) are also trying to get the most out of their employees while paying them the least.

Many of these organizations are funded by the same people who are driving their own profit gains. Individuals, like Jeff Bezos, infamously make their money exploiting workers, then give this money to non profit organizations to avoid taxes while still being able to control it. These non profits then use their non capital driven status as an excuse to pay lower than market wages.

I’m not an economist, but I do HR, and in nearly every organization, short of a co-op or collectively organized workplace, I’ve seen these same stories play out. It deeply pains me how many times I’ve been in between employees and management in exploitative pay negotiations. Especially when it comes to marginalized groups, who suffer the worst. Another article is needed to get into this whopper of a topic.

Without transparency, reporting, and accountability, organizations will not change. They have every incentive to continue to exploit workers. It’s vital that we unite and support each other in gaining equity and justice for a safe and dignified workplace. I encourage workers to form work councils, use their collective bargaining powers and any other strengths they have to stand up and demand better. First, start with educating yourself and know; you deserve better.

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