Is inflation eating into your salary? A job change can protect your purchasing power

Prices are rising faster than the salaries of many IDA members who find it difficult to maintain their real wage. A job change is the best way to maintain your purchasing power, but keep in mind what gives you job satisfaction. Read the advice from IDAs career consultant.

While many IDA members can look forward to a raise this year, it doesn't necessarily mean their disposable income will increase.

A salary increases must be significant if it is to compensate for the rising prices of energy and groceries, explains IDA's chief economist, Thomas Søby.

"This is the first time in many years that employees are experiencing a decrease in the purchasing power of their salary. In March, consumer prices rose by 5.4 percent compared to March last year, and the Danish National Bank predicts that inflation will increase by 4.9 percent overall in 2022. Therefore, you need at least a 4.9 percent salary increase to maintain your purchasing power," explains IDA's chief economist.

In 2021, the average salary increase for IDA's private sector members was 4.3 percent, while inflation was 2.2 percent. Yet 36 per cent of private sector members were unable to maintain their real salary during what was a period of significantly lower inflation, according to a new analysis by IDA based on members who participated in the salary statistics in both 2020 and 2021.

According to Thomas Søby, this is paradoxical, because there is a great demand for the skills of IDA members.

"Unemployment is low and we see companies competing for labour in several STEM industries. At the same time, companies are doing well, exports are rising and the National Bank estimates that there is room for salary increases in the Danish economy," he says and continues:

"It should therefore be reasonable for most IDA members to expect that their purchasing power will not be eroded."

Inflation is not a viable argument at your salary negotiation

However, if you are going to negotiate your salary in the near future, you should not use inflation as the only argument to get a salary increase, says IDA's head of negotiations, Anders Thrane Niebuhr.

You must instead prepare as you would otherwise by taking the company's objectives and your own work tasks as a starting point.

"It is a good idea to use IDA's salary tools to calculate your market value. In addition, prepare a list of tasks you have completed in the past year and put it in perspective with the employer's goals. In other words, make it clear to your employer that it is good business to keep you and your contribution," says Anders Thrane Niebuhr.

However, if your first priority is to maintain your purchasing power, changing jobs may be the best way to ensure a sufficiently high pay rise.

For the analysis of private sector members' salary developments in 2020 and 2021 shows that more members experienced a decline in real pay when they stayed in the same job. This was the case for 40 per cent, compared to 31 per cent of members who changed jobs during the same period.

The analysis also shows that 29 percent of members who changed jobs received a salary increase of more than 10 percent in 2021, while the same was true for only 9.9 percent of members who stayed in their jobs.

A raise can come at a high price

If you're thinking of changing jobs because your employer can't meet your expectations for a pay rise, IDA career counsellor Morten Esmann says you should think carefully.

"There's more to a job than the salary, so you owe it to yourself to consider what makes a job good. It could be the tasks, good colleagues, the location of the workplace or the possibility of working from home. On all those points, you may pay a price that the pay rise may not make up for," he says.

He points out that most IDA members are highly paid and therefore will not be financially squeezed by the price increases, but that they may find it demotivating if they do not feel that their salary matches their efforts.

"If you read in the newspaper that there is a shortage of labour and that salaries are rising, but you yourself are turned down in the salary negotiations and thus experience a drop in real wages, it can feel like a sign that you are not valued," explains the careers consultant.

If this becomes a source of frustration, he encourages people to make a list of positive and negative things about their work, and rank each item according to how important it is.

"Try to get an idea of what comes with the new job. If you get a pay rise, it may mean working more hours and less flexibility, but conversely it may mean advancement and more exciting tasks. If you know what's most important to you in your job, you can make that trade-off more easily."