How to estimate the cost of a job in the labor market – logic and tools HR-PRACTICEFebruary 4, 2021
When to estimate the cost of a job in the labor market
When a new position is introduced, when an employee is asking for a raise, when there is unwanted turnover or staffing difficulties.
Evaluation involves comparing the current salary with proposals from other employers – for comparison, we need to calculate the average market salary.
This is a very important task, as a mistake in determining the competitiveness of the proposed salary can negate all efforts to find and select personnel.
About the “price for labor”
Labor market participants are employers who declare in their proposals the requirements for job seekers and the “price for labor” that they consider fair and reasonable.
It is clear that the higher the salary offered, the more applicants it will be able to attract, the less time is spent on searching. But are all employers interested in making their offers the most attractive? Most of the time, no.
On the one hand, the employer would not like to “overpay”, on the other hand, he would like to hire employees within a reasonable time frame.
If the offer is obviously losing against the background of other employers, there is a risk of not finding applicants who will be interested in it.
Therefore, when determining the salary offered to applicants, employers are guided by the proposals of competitors in the labor market.
The middle of the range between high and low offers of “labor prices” is considered to be the average market wage.
Based on this amount, the employer can, if necessary, change his offer, positioning it about the “average”.
How to find out the average market salary
To understand which supply is “average” in the labor market, you can use publicly available salary reviews, buy paid reviews, or analyze the labor market yourself.
Significant shortcomings of the surveys are the inability to verify the reliability of the data, as well as the fact that many surveys contain information not about the supply on the labor market, but the salaries of employees working in a particular industry.
Such a review will not help to assess the competitiveness of the proposal.
The labor market consists of vacant positions in companies and applicants who are ready to change jobs, and the “price for labor” is formed by the ratio of supply and demand.
If a company does not enter the labor market with its vacancy, then applicants for a position in this company do not apply, and other employers may not consider this company as a competitor in the labor market, even if its offer is an order of magnitude more attractive than the others.
When it comes to assessing the competitiveness of wages, I am a supporter of independent analysis of the labor market.
How to independently calculate the average market wage
To calculate, you will need information from job search sites or print media if the placement of vacancies for the position you are interested in on the network is not very popular.
You need to generate an array of data on the size of salaries for positions:
- with the title and content of the job, similar to the title of the position that we are evaluating;
- with a different name, but similar content of the work;
- with the same requirements for qualifications, work experience, etc.
The average market salary is the median – the middle of an array of values sorted in descending or ascending order corresponding to the salary offers for a job in the labor market.
Enter the data into MS Excel, enter the median formula = QUARTILE.INC (A1: A7; 2) for the resulting range, and it will calculate the desired value of the average market wage.
If it is clear, then the sorted array of sentences for the position you need looks like this:
- 6000 is the maximum value (very high qualifications and/or work complexity)
- 5000 – competitive offer
- 4500 – median (average market value of the position)
- 1500 is the minimum value (low qualifications and/or work complexity)
Median and values above the median are recognized as competitive wages, assuming at least 50% of the offers are less attractive.
Wages close to the maximum and minimum values, as a rule, presuppose a priori maximum/minimum qualification requirements and maximum/minimum work complexity.
The range of competitive offers for a job with average or “above average” skill requirements and job complexity is at or above the median.
This is the basic principle for determining the average market wage.
About tools for calculating the average market salary
Any experienced user of work sites will tell you that one MS Excel function is not enough to calculate the average market salary.
Data on salaries on job search sites are presented in the formats “from” (a certain amount), “to”, “from and to”, so special algorithms are needed to process them.
The Salary Calculator, which I used to calculate the average market wage, has these algorithms built-in and detailed, just like the data processing formulas described above.
To use the Salary calculator, you will have to strain your head against your hand, but without them, you will not get verified data.