>Splitting the difference by not changing the salary at all seems fair, and nicely lines up with the agreement you already have in place.

You're not splitting the difference if market rates change. If pay is going up for marketable skills, the employee is eating the cost, if pay is going down for marketable skills, the employer is eating the cost. If there's inflation, the employee is eating the cost.

General inflation alone needs to be accommodated at bare minimum, otherwise the employee is incurring debt by remaining in place year over year. Most likely by staying somewhere, your skills are also being refined around said employer, so the value of your skills for said employer should be going up.

This ignores all the other factors. Businesses created this sort of employment market with high rates and high turnover because it's what they wanted, it's not the labor force that largely want it, they've just adapted to it.

> but why would they?

They should, because they observe the parent's point:

The employee now has the potential to jump ship and re-start this process for a higher $x, meaning that the employer risks losing the institutional knowledge/institutional memory that this employee contributes, and the employer will suffer the cost and risk of hiring someone(s) new.

An employer declining to give a regular pay increase is depending on their employee's loyalty and kindness to remain in employment at lower than their market value, and/or that the average employee has very minimal capacity for risk, because they must constantly stay housed and fed.

That might work for the employer a while, but personally I don't find it a wise long-term strategy.

This is quite a complex explanation of a process that I see as pretty basic and linear and as old as homo sapiens: new people are exciting, old tenure-wise people are usually not exciting because they are not new people, and their importance - especially in a big 1000+ company - is often overstated. The ship carries on anyway.

You can see this phenomenon everywhere and it is as clear as Caribbean water in marriages or relationship: one can be married to the most good-looking, engaging partner around, but doesn't the so-and-so looking person you have met a bar after a few drinks feel like a rush of life? After choosing the rush, some of them have regrets, but it appears that, in the vast majority of cases, life goes on. And it surely goes on for a company, so companies are not very motivated to spend more money for someone who's old news.

My experience in consumer and enterprise tech tells me that most the rationalizations one reads on HN and similar forums, that is the cost-benefit analysis of hiring or retaining, the calculations of how many hours of engineers' time are spent on hiring (or meetings!) instead of working on product, are fun academic discussions as much as doing a cost-benefit analysis of marrying your partner or going on as is, or getting a dog. They all talk about them, but how many do those analyses? How many go by feelings instead, or aspirations?

For example, in my current company (but isn't it the same in all companies?), when somebody leaves, there are the customary "I wish the very best in your future career" and when someone joins there are the customary "It is so exciting to have you here, let's book a 1:1". Opportunistic messages, but they also say something real about how we feel about the old and the new.

I remember a Uber guy who left the company after a few years of tenure. On Twitter, they wrote the usual: "It's been great to be here, I met so many exceptional people (...and all that customary boredom)". After 6 months, another Uber-er wrote on Twitter: "We worked so well on that product, I did not know you left!". It was an enlightening exchange.

You're missing the cost of talent acquisition. Assuming the company requires skill A, the actual cost is more like $x+$y+z where $z is the total cost of talent acquisition, including time spent by the hiring manager and recruiting team, disruption to the productivity of whomever sits on the interview panel, and the ($x+$y) for however long of a period it takes for a new employee to get up to speed.

The more frequent your turnover, the higher $z becomes.