I don't understand why people believe that their value is so much higher than their current wage. Either they have made some really bad career decisions or they lack self-awareness or maybe both. This is a market - just like any market - people get paid what they are worth to the company. There are a few exceptions of course, like in any market, but some people have better access, network, relationships or negotiation skills. Timing and Luck have a lot to do with it as well.
This is answered often by salary progression hampered by this:
One of the most frustrating aspects of compensation, which was mentioned earlier, is this internal/external candidate compensation. I fight this as a Managing Partner of my company as well as with my clients. This is one of the weirdest corporate anomalies I have seen. You can't pay the internal guy $80K but you can pay the external guy $95K. It makes me lose my mind.
which gets caused by those people believing this:
As many people have demonstrated, job hopping (particularly for compensation) is a real thing. It has it's advantages and its disadvantages. I personally don't believe it is a good long term career strategy but a lot of people follow it. It depends on what your end goal really is.
and made even worse by how often this happens as a result of the above:
It is nice to know people are being "fairly" compensated, but does suck when you find out a co-worker that sleeps in their cubicle is making 20% more than you only because they have sat in the chair for a few years more than you.
As ender pointed out, I think you answered your own question.
In my experience - when I was a young-ish engineer, I hired a few brand new engineers, one of whom worked for me. His first raise was 4%, but really only 3% because he'd only been with us 9 months when reviews came.
Note that in my particular industry, it was not uncommon back then to hire an engineer at $50k, but after 2 years of good experience, they were worth $60-65k. I asked my boss "well, since the typical 2+ year engineer gets $60-65k, how do you propose we get him there? Because he went from $48k to $49.5k in year one." Boss said "hmm...good point, I don't know."
Well, we never will know because at year two, he got a job offer for $65k. (He was making $51k at the time.) He turned it down, they offered him $70k. As his boss, I had to say "take it, you will never get that here."
Job hopping is pretty much essential these days in many industries and companies to get reasonable raises. It's not that hard to check salary.com, glassdoor.com, or industry related surveys to know what "average" or "typical" salaries are in an industry at particular levels of experience. Also, as I've aged and moved in and out of management, I've had to hire people from outside. I know what they get paid.
So when you say "why do people think they are worth more?" I can tell you that the last four senior engineers we hired (two of whom I had to train), they were making $12k, $17k, $30k, and $37k more than me. (Because I had been here for years.) Lest you think that I wasn't worth "more" or am a mediocre employee, most of them have since been laid off.
In addition, an industry search tells me that the typical engineer at my level is making about $32k more than me.
