Let me start my reply by stating the clearly obvious facts: 1) nothing I say will change your mind because you've already made up yours; and 2) you're a better master of rhetoric than I will ever be. You'll chew me up and spit me out in this debate. That's fine, I accept that. I'm now going to make an educated guess and say that you've never sat in on executive-level financial reviews of an entire business because if you had, we wouldn't be having this particular debate. I reserve the right to be wrong about this, of course, because I don't know who you are or what your experience is. I do know you're a very loud, vociferous, and opinionated veteran of /. as I've seen you rampage through here throughout the years I've been on. And you're always, always right, no matter what. I have never once seen you admit that you are wrong, Curunir_Wolf, and your posts are brazen and detailed enough that any admission would be startling.
Now, allow me to attempt to rebut you (and, I should also note that I don't have the experience with html tags that you do either, but we've already established that I've lost this in advance... you can feel free to dismiss everything I write from here on out and stop reading if you like).
Wages have not technically been flat. Even though NeoMurphy below pointed out that wages tend to freeze at the top end of their range, we still give out 1-3% raises to decent-to-top performers because we need to give them -something-. That tends to add up over time. Now, consider Lean initiatives, Six Sigma, and all those other corporate philosophies. They don't just affect production and manufacturing, they also affect how companies perform their governmance of their financials too. No executive worth his or her salt is going to sit there and say "I've got a pool of experienced senior employees who have all collectively maxed out on their pay range, refuse to go into management, refuse to cross-train or hop into a whole new program or new job skill set, and who are obstructing any possible career progresss for less experienced employees, thus necessitating high turnover amongst our low-level employees." No, any good evil bastard of an exec is going to be working hard on how to figure out how to either crank up productivity to justify those continual, never-ending salaries. But you can only push people so far, only push productivity so far per person in whatever job they do before you hit the inevitable diminishing returns. And damn good senior employees tend to hit that point pretty quick.
You brought up turnover--there are two big reasons in my anecdotal experience (did we mention I'd lose this debate? We did, so if you're still deigning to read this, Curunir_Wolf, please crow about how anecdotes are worthless and we'll get on with it) for why turnover happens. First, entry-level employees tend to leave because they realize they don't want to do what they are currently doing. Happens all the time... financial analyst is miserable at her job and realizes she's happier being a personal trainer after just a year and a half on the job and is out the door, having cost her employeer a lot in terms of fees, training, salary, benefits, etc. That goes into the COGS bucket as a hit to the budget of the department. Or, said employee leaves because senior employees are camping out in their positions and refusing to move upward or onward (because hey, who wants to be a stupid management goon, amirite?) and go to greener pastures. That hit also goes to the salary budget.
Now add to that the bank covenants providing your cashflow which are tied to EBITDA, necessitating that you either hold all your costs flat or reduce them year over year (or sometimes quarter over quarter depending on the terms of the lines of credit that the executives have had to bargain for), plus all the corporate initiatives coming out that the Board of Directors or the new CEO is mandating because surprise! your company isn't that special and is nowhere near perfect in terms of governance nor of complying with all the laws nor in terms of honing productivity that little bit more, and yet you've got senior professionals forming this constant, consistently growing lump of salary pain year over year that even at 1% growth per year compounds into a big giant number, and you're losing all this fresh talent due to high turnover, and you start setting the perfect storm for nervous executives (who aren't all that evil, or bright, or good, or who through an unimaginable conflux of inter-related events are being told to Bring Costs Down because Thats Their Job) to consider outsourcing. And then to top it of, the quality testing and production jobs that are being considered don't necessarily have to be perfect, just good enough (because that's how IT works as an industry--but of course you already knew that because you know everything Curunir_wolf because You Are Always Right), and then it comes down to whether or not you can come up with a reasonable excuse to the CEO and board of directors and bank and impatient shareholders who want those glorious profits divvied up into dividends or spent acquiring a new business that will jack stock prices up even more, why you should keep those senior professionals.
But of course, this is all wrong according to you, and you will pick apart my argument. And then in ten more years when IT work in America has gone the way of garment workers at the turn of the 20th century, you won't remember this conversation, which will be useful because you'll still be Right. And Being Right is really what's important... amirite?