Looking to Benchmark Pay?
Market Value of Jobs
The market value of jobs is determined by the:
- supply of labor
- AND
- demand for labor
What happens when the supply of labor is extremely high or low? Let's take a look…
| Excess laborers | Laborer shortage |
|---|---|
| An excess of workers causes pay rates to drop. | A shortage of workers causes pay rates to rise. |
Area
When a particular geographical area is seen as an attractive place to live, a large number of people move there, and salaries may decrease due to an eventual oversupply of labor.
Occupation
A drop in pay rates may also occur within occupational areas.
For instance…
If recent college graduates prefer certain types of jobs and then move into the workforce in large numbers, pay in those occupations may drop.
The increased use of robotics will decrease the need for labor in certain occupations. As a result, pay in those occupations will likely drop due to an oversupply of labor for those occupations.
Of course, the opposite is also true – a shortage of labor will raise salaries.
Here's an example:
The demand for AI software developers exceeds availability in the current applicant pool. As a result, the market value of the job has risen rapidly.
Many times, companies find themselves in a bidding war to find and retain employees with strong AI software development skills. Top companies will retain their top employees through equity grants with vesting requirements — making it difficult for other companies to recruit them.
Salary surveys
Pay rates are determined by the interaction of the:
- supply of labor
- AND
- demand for labor
For the organization, the result is a series of pay rates for the organization's jobs. Information on these rates is collected through salary surveys.
| Salary Survey | The collection, analysis and use of compensation data pertaining to other employing organizations within the labor market area. |
|---|
The result of the salary survey process can be a simple or a comprehensive analysis to guide an organization in paying its employees competitively in comparison to its defined marketplace. DLC Course 73: Analyzing Salary Surveys, covers how to collect and analyze salary survey data.
Memory Jogger
Pay rates move ____ the supply of labor.