[consp]

>> The replacement cost becomes a key metric when presenting a counter offer to an employee who got a better offer elsewhere.

Do not forget that replacement cost the first few months to about half year is quite high. You are far less profitable to a company if you are new as you take time of others and are less up-to-speed. But that never gets taken into account when dealing with pay increases for retained employees. E.g. you should get significantly more than a new hire if you are with the company for longer as it usually a benefit. Though there are counter examples to this statement, so it is various shades of gray between new hires and paying retained employees more.

[lotsofpulp]

Similarly, the replacement cost of a new employer is also high for an employee if they have a family and don’t want to move and/or can’t gamble on the conditions at a new employer. I would say thaumasiotes is correct in saying an employee is paid what it would cost to replace them, in 99.9% of cases. Of course the buyer takes risks such as not finding as good of an employee, cost of training, legal risks of terminating or hiring, and the cost of the message it sends to others, but it’s still the same concept.

No buyer wants to pay more than they have to, hence when the value an employee adds is commoditized, you see that they get paid exactly what it costs to replace them, hence the minuscule pay and terrible work conditions of retail, restaurants, and hotels.