Rising interest rates have prompted a resurgence of “loyalty tax” stories* – the extra money loyal customers end up paying for loans, insurance and energy compared with the deals on offer for those prepared to change banks/insurers/energy companies.
But there is a bigger and more widespread “loyalty tax” millions of Australians pay each week: The income they forfeit by being loyal to their employer, but not being prepared to change jobs.
And some of us pay an extra charge on top of that, what I’ll dub the “meek tax” – what is forgone by not asking for a raise.
Last decade when the Reserve Bank was very keen to see higher wages growth, the Governor explicitly advised people to change jobs. It was the surest way of increasing your wage.
Aside from government policy to suppress wages and the erosion of employees’ bargaining power, the decreasing willingness of Australians to change employer has been sited as one of the factors in substandard wages growth over the past decade.
Now with inflation commanding the RBA’s attention, the Governor isn’t campaigning for higher wages, but his pre-inflation advice remains sound. As opined here previously, if there’s a new recruit doing the same job you do, odds are that recruit is being paid more than you are.
But there are encouraging signs that the wage loyalty tax might be shrinking, thanks to the building pressures of low unemployment and a shortage of skilled workers in many industries.
Exhibit A for the prosecution is a Melbourne University study alleging that not only has the loyalty tax been shrinking, people who don’t change jobs are getting bigger wage rises now than those who do.
Unfortunately, I don’t believe the study’s conclusions. It is based on surveyed perceptions of pay increases and I don’t trust what people tell survey takers when it differs from harder statistics and common sense.
For example, as reported in The Conversation, the Melbourne Institute survey found people expected to get a pay rise of less than one per cent over the next year whether they had switched jobs or not.
The pessimistic surveyed folk are talking cash here, not “real” after inflation wages. Times are bad for real wages rises – we’re going backwards after inflation – but every bit of alternative data is saying the people surveyed have no idea.
(If we could believe them, if they were correct about their miserable outlook, the RBA could stop lifting interest rates immediately as we clearly aren’t facing a wages spiral.)
Exhibit B strikes me as more credible, albeit limited to a couple of industries running hot in their demand for workers.
The latest salary guide by recruiter Robert Half finds that nearly all IT and finance business leaders are increasing their salary budget this year by a fat 20 per cent on average with some of that increase coming from the smarter bosses realising they have to pay existing staff more to prevent them being poached.
Yes, the IT and finance sectors are not typical of the broader labour force. They generally are not the sort of jobs given to the collective bargaining debate that has featured at that the jobs and skills summit.
Nonetheless, the trend is encouraging.
Robert Half director Andrew Brushfield said the talent deficit was putting pressure on employers to increase starting salary offers and candidates were increasingly aware of their bargaining power.
“These premiums often sit around 20 per cent but reach 30 per cent or more for niche or specialist skills tied to digital transformation such as data analytics, cyber-security or financial planning and analysis,” Mr Brushfield said.
“While challenges to secure talent are putting upwards pressure on salaries for new hires, this is giving rise to pay equity concerns, with growing salary discrepancies between new hires and more tenured staff in the past year.”
Ah yes, the loyalty tax. The good news is that the smarter employers are waking up to the inequity.
“Employers are wary of losing tenured talent to the lure of a head hunter – and the inflated costs to refill these roles – so are lifting their overall salary budget by an average 20% to bridge the disparity between current pay and the salary premiums on offer with a job change.”
The survey also pointed to a sharp difference in pay rises depending on the size of the company. Small companies were budgeting on average for a 10 per cent increase in salary costs compared, roughly half the increase of medium-sized companies and a third of the largest companies.
Let me repeat, these industries are not typical of the nation, but that makes another couple of aspects of the survey even more remarkable:
- One in five employers don’t expect employees to ask for a pay rise.
- While 96 per cent of employers are prepared to award raises, most of them (63 per cent of the 96) “will only extend pay raises to those who ask”.
- Only one third of employers will give raises to employees who don’t ask for them.
What I find absolutely extraordinary is the survey reporting only 44 per cent of workers were planning to ask for a pay rise by the end of this year, but 78 per cent say they are likely to “look for a new role” if they don’t get a raise.
What a meek and mild lot we have become, hence the “meek tax”.
The moral of the story is to ask for a raise. If you’re outside the award or EBA system – odds are your employer will otherwise let you pay both the loyal and meek taxes.
*When I started writing about the phenomenon earlier this century, I called it the “lazy tax”, the cost of being too lazy to shop around. It seems to have been renamed the “loyalty tax” so as not to offend people.
