Rise of salaries in 2008: a cause to celebrate or just another sign of inflation?

The study claims that the increases are calculated after inflation, but we do not find that plausible; not only that this is an inflationary event, but it is, in our view, driven by inflation.

Although Global salaries are expected to rise by an average of 6% in 2008, 1.9% above projected average inflation, according to a study of 62 countries worldwide by Mercer.

According to study results, India can anticipate one of the highest average pay increases in the world at 14.1%, nearly 10% above projected local inflation. North America and most Western European countries are expected to experience the lowest salary increases worldwide, though, in all fairness, this is perhaps because the remuneration in these regions is already relatively high.

In speaking about the implications of survey results, Steven Gross, Mercer worldwide partner and global head of broad based performance and rewards consulting, warned of the perils of short-term thinking as companies contemplate sourcing labour from emerging countries where workforce costs may be low but also volatile:

We are starting to see that short-term cost savings from sourcing labour in emerging markets can evaporate over time. It is therefore essential for multinational companies to consider both current pay levels and future salary increases when deciding where to source their labour.

Some companies that might otherwise be looking at emerging economies to establish their customer services are now reconsidering their options. Immediate cost savings are no longer the only consideration, as short-term affordability might be offset by long-term volatility in labour costs and inconsistent service quality in many emerging markets.

The table below features, for select countries, survey data on forecasted 2008 pay increases and projected inflation rates, ranked by projected pay increase after inflation.

CountryProjected average (‘actual’) pay increasesProjected inflation ratesProjected pay above inflation
Europe
Western Europe
Ireland4.72.12.6
Switzerland 2.5 1.0 1.5
Spain 3.8 2.41.4
France 3.01.81.2
Italy3.11.9 1.2
Germany2.71.61.1
United Kingdom 3.12.01.1
Netherlands 3.0 2.1 0.9
Eastern Europe
Bulgaria 9.34.4 4.9
Turkey 8.54.04.5
Romania8.3 5.0 3.3
Slovakia 4.72.0 2.7
Czech4.0 3.1 0.9
North America
United States 3.71.8 1.9
Canada3.82.0 1.8
Asia Pacific
India14.14.39.8
Vietnam11.96.35.6
China 7.53.24.3
South Korea 6.42.5 3.9
Japan2.5 0.81.7
Australia4.02.51.5
New Zealand3.92.61.3
Source: Mercer’s 2008 Global Compensation Planning Report Perhaps the most important revelation of this study is that high salary increases are not relevant when erased by high inflation, as seems to be Romania or Czech's case. Both Turkey and Bulgary will see higher increases in real wages primarily because of doing a better job at curbing inflation.

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