Global Factors Affecting Employee Compensation and IT Salaries

By Tim Costello

Updated Over a Week Ago

Minute Read

When pay goes up – or down – it is easy to consider the immediate impact of that change without thinking too much about the bigger picture.

Although management teams may feel as though they have control over salaries, the decisions that are made are influenced by a host of factors, from rising demand to the soaring cost of living.

According to Motion Recruitment’s IT Salary Guide, despite the uncertainty of the past couple of years, the tech job market is still strong, with unemployment at 0% in some sectors. 

So, how exactly can global economic factors lead to a rise in salaries, and what can tech employees and employers do to ensure security in a volatile market?

Employment Levels

People are the same as products; with scarcity and increased demand comes increased perceived value. According to the US Bureau of Labor Statistics, IT unemployment rates are lower than the national average, but they are slowly creeping up.

This could be, according to the Wall Street Journal, due to a slowing down of IT hiring as AI-enabled automation is utilized across more and more tech streams. As unemployment rises, employers traditionally become less inclined to hire new workers instead of waiting to see how demand will change and how they can cope with those demands with their existing workforce.

This has the potential to further increase unemployment which, in turn, can lead to a depression in wages; if ten people are willing to do your job, you are less likely to ask for (and get) a pay rise.

Inflation

Amid a global rise in the cost of living, employers are under pressure to ensure that their employees are able to survive on their wages.

As those on lower wages see a rise in pay, those higher up the chain will normally expect a proportionate rise, which sees a gradual surge in salaries. These surges are not necessarily unified; cost of living increases will affect different geographical locations differently, and remuneration may be altered accordingly.

What is unified is the responsibility of organizations to react to large fluctuations in the cost of living, particularly in terms of staff members at the lower end of the pay scale who are likely to have less disposable income than their better-paid colleagues, which leaves them at far great risk when the cost of core needs: food, fuel, and shelter, rise.

factors affecting employee compensation

Globalization

Globalization – the international integration of goods, technology, labor, and capital – is the norm in a world of ever-decreasing boundaries.

All over the world, we will see clothes made in Cambodia, German cars in the streets, and US computers in offices across the globe, and we are just an email away from buying products or investing in stocks from countries thousands of miles away. Globalization provides employers with a wealth of choice, enabling them to slash production costs by shipping jobs that would normally be undertaken by domestic workers overseas.

There was a time when this concept was limited to the production of consumer goods, but in this digital era, organizations can find tech staff from across the globe to work as effectively on a remote basis as local team members.

Globalization can allow for the importation of valuable resources, as well as bringing opportunities, and much-needed cash injections to remote areas, however, it is often credited with driving down salaries, particularly those at the lower end of a scale.

International trade, according to economic theory, can have an impact on the cost of both importing and exporting products. These fluctuations in cost then influence the labor demands, which, in turn, will have an impact on labor costs. The fluctuation in product prices, prompted by competitive pressures from imports, results in altered profit prospects for businesses.

In response, companies reallocate resources towards sectors experiencing increased profitability and away from those witnessing declines. This dynamic leads to shifts in the labor market, requiring more workers in burgeoning industries and fewer in less profitable ones. Assuming a fixed labor supply, these changes in demand contribute to a wage increase as workers seek compensation for transitioning into more lucrative sectors.

Factors to Consider About Globalization

Although there is considerable narrative regarding the negative impact of globalization on specific groups of employees, there are some mitigating factors that should be considered.

Trade doesn’t just impact wages; it can affect consumer prices, too. If we are looking at the impact that global trading has on welfare, it is important to not only look at the impact it has on wages in-country but also its direct impact on the cost of goods. If wages have gone up, the cost of producing goods will also go up, so the corresponding increase or decrease in wages may well be neutralized.

Secondly, the impact of globalization on earnings is usually very local, affecting specific groups or geographies. Finally, the rhetoric on globalization tends to focus only on those countries at the top and bottom – that is, those that have the most and the least to gain from trade agreements. The populations in between and the resulting impact on their standards of living are largely ignored.

Industry Conditions Presenter with Charts

Industry Conditions

As we emerged from the global financial crisis and the inevitable recession that followed it, banks came under the spotlight for the exorbitant bonuses that were awarded to senior employees.

The counterargument from the banks and investment firms was that bonuses were essential in order to retain critical staff members who operated under extremely stressful circumstances; it wasn’t surprising, then, when UBS blamed cutbacks at senior levels for mass resignations.

Currency Fluctuations

Fluctuations in the exchange rate can impact the internal operations of organizations, affecting all aspects, from the cost of importing goods or services to the net cost of employee benefits. As such, a weaker currency will make it more expensive to pay overseas team members, while a strong currency will reduce salary costs to an organization.

Technology

Technical jobs are among the easiest to outsource to a different country, as language isn’t necessarily a significant barrier.

The influx of technology has the potential to elevate labor prices by enhancing productivity. In a broader context, the diffusion of technology and production techniques could lead to a convergence of wages across countries. Increased trade plays a role in fostering innovation and the dissemination of technology, thereby indirectly influencing wage levels.

One potential pathway for the transfer of technology between nations is through multinational corporations transmitting technology from the parent company to its subsidiaries. Typically, greater foreign investment in a specific industry correlates with higher wages within that industry.

However, a recent study examining Mexico and Venezuela suggests that foreign direct investment tends to boost wages solely within the plants of the foreign affiliates; there is no discernible evidence indicating that the technology spills over to elevate wages or productivity in domestically owned firms.

Ensuring Stability

In some respects, it can be easier for small organizations to react to changes in the economy; as smaller vessels, it is easier to change direction. However, larger businesses tend to have greater financial security and mitigations in place to balance their extended financial liabilities.

A key to riding out an economic storm is for employers to work on retaining and upskilling their teams so that they are better equipped to face the range of challenges ahead without having to invest in costly and time-consuming recruitment processes.

One way that employers can protect themselves is to hire a specialist recruitment company. Skills-matrix could be a solution. It is a two-dimensional table, commonly created by talent teams or HR professionals, designed to assess an employee’s skills and abilities. This tool helps identify comprehensive skill sets, experience levels, and general competencies required for a position or project.

With industry insight and a wealth of experience, recruiters are better able to anticipate future changes and aid their clients in making wise decisions in the short term to protect them in the longer term.

A volatile employment market is a difficult space for a job seeker to be. If unemployment and inflation are on the rise, sticking with current employment might be the safest course of action – there is no reason why an employee can’t play it safe and stay in their job while looking for other potential roles or investing in their own development.

For those looking for jobs without a current position, a tech recruiter is a strong option; they will have a better understanding of arising opportunities and will be able to advise prospective employees on the skills and qualifications that they will need to showcase in order to secure a position.

Implementing Creative Solutions

In terms of rising salaries, organizations that can’t afford to meet the increased costs can be creative, adding additional benefits such as flexible working or home working to staff packages instead of cash; many people value home and flexible work opportunities over pay rises.

For employees, a rise in salaries will usually mean a rise in demand, creating an employee market. For someone looking for progression that is not possible or likely in their current position, this is an opportunity to look elsewhere.

Conclusion

Economic factors are not the only ones affecting salary rises or drops; demand is another significant element that can see salaries soar or mass layoffs. For companies and employees alike, before making significant decisions, it is vital that they consider the current and future landscape and take account of the risks and opportunities that they may face.



What Factors Affecting Employee Compensation Impact Your Organization?

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Tim Costello on Linkedin
Tim Costello
Tim Costello
Tim Costello is a Marketing and Content Strategist. With a robust technical background developed over many years in the IT field, Tim has transitioned into a more creative space, focusing on digital marketing. He dedicates his time to crafting high-quality articles inspired by his life experiences. Tim's mission is to contribute to improving the internet, one page at a time, by delivering better quality content.
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