Wage Compression
Perhaps the most challenging effect of a minimum wage increase is analyzing and addressing the effect of wage compression. Wage compression occurs when there is upward pressure on entry-level compensation, causing a ripple effect that is felt throughout the wage and salary structure. It includes the competitive pressures of a tight labor market as well as mandated minimum wage hikes. Minimum wage increases immediately affect industries employing low-wage workers who may be at or only slightly above the pre-existing minimum wage. Employee relations problems also arise because exempt supervisors may be making less money than their nonexempt subordinates, whose pay often includes significant overtime pay. You should closely examine changes made to nonexempt employee compensation to remedy the "compression" of the differential between their wages and the pay of more senior employees. Wage Compression WorksheetUse the Wage Compression Worksheet to analyze the effect of wage compression in your workplace.
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