A structural way of looking at wage inflation

This week, I am attaching a brief report that highlights the key aspects of Wage Inflation.  I hope you like this report.

This report distinguishes between cyclical and structural wage inflation, emphasizing that not all wage pressures are temporary. Structural wage inflation reflects deeper shifts in the labor market—particularly evident in roles such as AI Engineering—while short-term economic fluctuations drive cyclical changes.

Key Insights:

• AI Engineering roles have seen structural wage inflation (up to +56% in North America), driven by GenAI and automation investments.
• Cybersecurity and General IT (Mid-Level) roles show flatter growth, suggesting undervaluation or commoditization.
• CISO/Leadership roles have moderate growth tied to strategic impact rather than headcount.

Analytical Frameworks Introduced:

• Cyclical vs. Structural Wage Inflation: Structural inflation persists even when the market stabilizes and requires deeper interventions like workforce redesign.
• City Tier Analysis:
  • Tier 1 cities show faster inflation due to high innovation, low hiring friction, and wage transparency.
  • Tier 2/3 cities experience slower inflation but risk delayed wage spikes.

Forecasting Wage Risk: Proposed Methodology

A multi-factor model is presented, incorporating:

• Lagged job demand
• Compa-ratio (new hire vs incumbent pay)
• Attrition levels
• Inflation misalignment
• City tier dynamics

This model yields a normalized wage pressure score (0–100) to compare roles and periods.

‍Strategic Recommendations:

Wage pressure escalates when internal talent systems fail. Organizations must:

• Invest in internal mobility and skill adjacencies
• Forecast emerging roles proactively
• Act early on reskilling to avoid high external premiums

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