It's cheapest overall for an employer to pay market rate for new hires and give existing employees small, regular raises.

If you need to hire someone, you're going to have to pay market rate for a particular hire. You can pay less for less skill or in certain locations. You can try to offer below market and wait for a candidate with few options to accept. But you can't really get around this. If market pay is going up, you're going to have to pay more than for existing employees. If pay is going down, you can pay less than existing employees. Usually it is the former, but there are absolutely companies right now in the declining wage situation where they are paying new hires less.

As for existing employees, most will complain if they are being paid less than new hires, but only some fraction leave. Usually bringing everyone up to the new hire pay level costs way more than the cost from backfilling positions where someone left for more pay or to give counter offers for those you want to keep from leaving.

If they don't, the new hire goes to another company that does.

Here is another, but related question: why don't long time employees look for a better paying opportunity?

For the same reason insurance companies charge existing customers more than new ones. To take advantage of switching costs.

I answered this question here last month: https://bloomberry.com/why-new-hires-often-get-paid-more-tha...

Basically it comes down to a few reasons:

1) Hiring budgets are always > than budgets for raises

2) HR and recruiters are incentivized to hire new people rather than retain current ones

3) Employers overvalue experiences obtained elsewhere

4) Nobody really wants to solve the problem of retention because it's a deep-rooted issue with no easy fixes (unlike paying someone new a lot of money)

New hire budget is bigger because they're competing for talent. For existing employees, since most don't leave jobs for better pay, they only need to approximate industry average pay.

Switching jobs is stressful and you can only do that so often before being flagged as a job hopper. One company declined to interview me because I switched jobs in less than 3 years(2.5). Plus, if the pay is decent, why rock the boat? The competition may have worse work environments, bosses or colleagues.

This is why unions existed.

In my company the new hires are usually the worst payed people. We have a scheme that has a base pay and if you fullfill the requirements, additional money is added to the base pay each month. It used loyalty with the company and certifications to determine the addition to the base pay.

I've been seeing the entire opposite. New hires in this shitty economy are getting really smaller offers than they would 2-3 years ago.

One very clear sign of this is if you are in the management side (I am), the amount of REALLY IMPRESSIVE talent that is looking for a new job at the moment is just bonkers.

Recruitment agencies business for developers is a dying kind of business at the moment, companies can directly access top-notch talent by sorting through CVs, running tests etc (typical company recruiting process).

Most companies have very low IQ. Don’t expect any strong reasoning from them.

Because they are competing with each other at current market rates.

But you can make this work for you. Give yourself a raise every 2 years or so.

This is like saying why are potatoes more expensive than tomatoes. Well because the market decided so

I am very well versed in how to react to this but I agree that we shouldn’t have to react to this

Because long time employees don’t ask for raises, or more accurately, demand them.

Because they can.

What else possible answer did you expect, i sincerely wonder?

Do they?

Any evidence or data to back this up?

Anecdotally, I can say that when I was hiring devs in a large AU Corporate, this wasn’t the case :-)

Cause they can