I've heard that salary inversion is a problem in academia, and it happens when Universities continue to hire new and highly qualified people at higher and higher salaries, but they don't increase the salaries of the existing faculty at the same rates.
I want to ask - why is this actually a problem? Shouldn't salary be based on merit and qualifications, not how long you've sat at a particular desk?
I want to ask - why is this actually a problem? Shouldn't salary be based on merit and qualifications, not how long you've sat at a particular desk?
Yes, it should. But consider what happens if I've been sitting at a desk for ten years, doing hard work and feeling good about it, and one day you arrive, take the next desk, and have a higher salary than I do. It is hard for me not to feel:
1) That my employer is less than grateful for my ten years of desk sitting, given that I (apparently; as you point out this does not logically follow) am being paid less than if I hadn't done any of it whatsoever.
2) That maybe I have been sitting at the same desk for too long. It gives me the idea to follow your lead and earn more money by starting fresh at a new desk.
Thus: although one can say that the market is the market and its invisible hand is totally amoral, in reality this amoral practice is bad for morale. And if you as an employer do happen to value the person who has been sitting there for ten years as much as the new guy you would hire -- or even if replacing the 10 year veteran would be disruptive to the workforce -- then you may have some interest in pushing back against this market force. The desk-sitters certainly will, and depending on their mobility, you may want to take their feelings into account. (In a sufficiently bad economy, maybe you can persuade them that they're looking at it wrong, and that instead they should be very happy about having ten years of steady employment.)
I think there are several issues.
You might argue that salary "should" be based on merit and qualifications, but these are highly subjective and often evaluated by people within the university who have other vested interests, so there's a substantial risk that internal politics or other factors may not measure merit in a fair way. Given this, existing faculty may prefer a system that puts more weight on objective measures like seniority, and faculty have a lot of say in the administration of a university.
On the other hand, new hires are not really paid based on their merit and qualifications either: they're paid their market price. The dean may not think that Assistant Professor A's qualifications really "deserve" a salary of $X, but if the job market is strong and that's what other institutions are paying similar candidates, she either pays him $X or she doesn't get to hire anyone this year.
Then, suppose Assistant Professor B has been with the department for 3 years. Her qualifications are comparable to those of A, but she was hired in a year when the job market was weak, so she accepted a low salary offer $Y < $X. Since then has received a standard raise of a few percent per year, so her salary is still below A's. She could probably go back on the job market and find a job paying $X, but here she is well on her way to tenure, she has settled in the city with her family, her spouse has a job in the area, and they are disinclined to make another (possibly long-distance) move. Moreover, changing tenure-track jobs is always challenging (she would have to get letters from within her department, but if too many colleagues find out she is thinking about leaving, it will hurt her standing within the department). So she has limited mobility and no real leverage to negotiate for a higher salary.
If she finds out A is making more than her, despite being similarly qualified, she will not be happy. Unhappy faculty who nonetheless have no interest in leaving is not a recipe for a well-functioning institution. And a dean who's in favor of correcting salary inversions will probably get Professor B's vote.
Salary inversions are mostly a problem at public schools, where the state budget situation and state legislature have some control over whether there will be any raises at all. Due to inflation, this means that often all state employee salaries are shrinking in real terms. So, the longer you have the job the less you're paid no matter how much merit your work has. Hence salary inversions are not typically a result of younger profs having more merit, but rather the budget realities of working for a state government. Of course, there are other affects that can counteract this: many schools have funds specifically intended for reversing inversions, and many schools have automatic raises at tenure and/or promotion so that there are at least some raises that the state can't block.
To summarize: salary inversions are a problem precisely because "salary [should] be based on merit and qualifications, not how long you've sat at a particular desk." Inversions happen because given equal qualifications the person who has been at the job less time will be paid more.
I think the main issue in that is that you will drive your talent away and keep the left over if you do not make the correction.
If the market is higher than a few years ago, if you do not correct the salaries, basically you encourage all the one that have salaries below market to look for new position. The best ones will succeed while the less good ones will fail. Results: you lose your best element and keeps the less good.
Since academia has very little 'fixed' position the phenomena is less striking, but in a company (particularly in country where laying off is frowned upon) you get a concentration of some 'that cannot go somewhere else'. This is definitely not what you want.
Besides all the other great answers here, there is another reason that merit does not entirely govern salaries. Many universities have an annual period for "merit" raises which require little justification, saving raises for "equity" reasons for special cases. Since everyone is eligible for these so-called merit raises, almost everyone gets one (management being what it is). As such, institutions impose caps on departments that may limit merit raises to 2-3% per year over the department. Coupling that to the public nature of government employee salaries, you can see how these raises become little more than cost-of-living adjustments. On the other hand, departments have to recruit new hires against a competitive background market that may cause a new salary to be higher than a 2% annually compounded salary from 10 years ago. Thus, an inversion.
