Why is salary inversion a problem?
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.)