How do companies end up with inflated labor costs?
Generally speaking,
1. A salesperson leaves with a key client, and the order is lost.
Salespeople who leave are usually either poached because they’re bringing in money or fired because they’re not.
2. A core developer deletes the database and quits, causing project delays and blocking payment collection.
3. Refusing to give experienced employees a raise only to discover that hiring someone equally skilled now costs even more. Once veterans realize their pay is lagging behind new hires, they’ll naturally leave.
4. A reliable veteran gets driven out by a micromanaging new manager, while newly hired replacements keep coming and going.
From an employer’s perspective, the takeaway is simple: implement company-wide salary adjustments slightly below market rates to retain employees to some extent.
For employees, the lesson is this: if you notice high turnover, very few people with two-plus years of tenure, and minimal annual salary bumps, congratulations—you’ve joined a company that exploits its workforce. Don’t let your manager sell you some grand vision; accumulate one year of experience and get out.