Wage Inflation In The Post-Pandemic Times

The law of Supply and Demand is one of the first to be taught in Economics. It is the one that determines the price at which goods/services change hands. More the demand, higher the price. More the supply, lesser the price. Law also states that equilibrium in the price of goods/services will be achieved in due course of time when supply and demand stabilize. ?This law sounds basic and very simple to understand. This law applies to practically everything we deal with as humans. What we shouldn’t miss noting is the un-obvious impact it can have. In the course of history, this law, as applied to food and water (as goods), has impacted civilizations and cultures. ?As applied to natural resources and wealth, it has impacted geopolitical stability, nations’ economies and people’s wellbeing.

When it comes to hiring and retaining talent, how is this Law of supply & demand currently panning out? What are the paradigm shifts that are currently underway??Whether and when the price equilibrium could be reached? ?I have expressed my views on each of the three open questions in the paragraphs that follow.

High demand for talent, especially in IT, has raised the bar on average salaries. Wage inflation is always good. It means the market for the skilled workforce is good. It helps improve the standard of living and indirectly helps nations’ economies. Over the last two years, wage inflation has been higher than ever. Is this fast-paced rise in wages sustainable? I wonder how some companies can now offer 2X or 3X more for the same talent compared to a year before. Their revenues are not growing at the same rate. They may be growing in double digits but not really doubling in a year. Wages being the major cost for an IT company, it is increasing faster than the company’s topline. This is a concern. In case the demand reverses and growth slows down, there could be wage freeze or wage cuts. At In Time Tec too, our wage cost as a percentage of revenue has gone up compared to previous years, but we have been mindful that increased costs are sustainable. As a result of our stance, we have lost very good talent at times because we consciously decided not to match the offers in order to make them join or stay. Though this decision is causing growth pain to us, we decided not to stretch ourselves too hard. In addition, we will not do something that puts a question on the sustainability of the company and employee wellbeing in the long run.

A paradigm shift in the employer-employee relationship seems underway. In the last two years, average tenure of an employee in an organization is decreasing. Talent management and retention are now focused more on the remuneration, perks & bonuses than ever. There may be less focus on long-term career development and investment in employee training since that will always be an additional cost to the organization. The onus of skill development is now shifting more towards employees. Someone who is complacent and has not been investing time in self-growth is running the risk of lagging in the long term. However, at In Time Tec, we have made a conscious decision not to bring any changes to our employee engagement and training initiatives. We will continue to invest in our employees' growth and stay committed to our core mission of "Creating?Abundance."

Now, on when the price equilibrium could be reached? Earlier this month, a couple of listed IT companies announced their quarterly results. Though the topline had very healthy growth (highest in a decade), the bottom line was less than market expectations. As a result, the IT stocks in general corrected. Most of the new age tech companies that listed last year in Indian exchanges are trading below the issue price and the investors are questioning their cost structure and their ability to be profitable. This together may reduce the rate of wage inflation. It may still take over a year to stabilize. I strongly believe reaching a price equilibrium where wage growth is predictable is favorable for both the companies and the workforce.

Lastly, my word of advice to the younger workforce-

Do not bite off more than you can chew. Elevating oneself to the next level is easy but falling back could be problematic if the wage raises end up as a bubble.

1. Be mindful while upgrading your standard of living in relation to salary hikes.
2. Do not go overboard while buying things on credit.

Personally, I am practicing the same.