User:UQECON2021/sandbox

Causes
Historically, wage compression tends to occur when employees in identical jobs (e.g. Financial Analysts) are paid wages based on a broad range, instead of having a designated pay range for each level of a position (e.g. Financial Analyst - Level 1 [Year 1], Financial Analyst - Level 2 [Year 2], etc). Furthermore, wage compression is particularly prevalent when the wages of an organisations current employees don't proportionally mimic the increases in an industries average wage rate. Hence, these scenarios may result in:


 * The renumeration packages of new employees is equal to that of an experienced employee, in an identical job position level (i.e., when the wages of less experienced employees are equal to the wages of experienced employees).
 * The renumeration packages of junior staff are approximately equal to those of senior staff, in an identical job position (i.e., when the wages of low-level employees are approximately equal to the wages of high-level employees).

Wage compression is a result of numerous underlying issues, all of which tend to transpire over a period of years. These issues may have varying effects on firms, employees and the overall economy, especially in times of high economic uncertainty.

Minimum Wage (Increases)
Increases in minimum wage tends to result in junior (low-skilled) workers being overpaid relative to their senior (high-skilled) peers. Furthermore, senior employees may be underpaid relative to their junior peers. Thus, increases in minimum wage may result in the wage gap narrowing.

Firms
If wage compression is present, firms will likely exhibit changes in employee sentiment, in regards to: effort, responsibility, motivation and loyalty.


 * Effect on skillset: If low-skilled (junior) employees are paid relatively equal to their high-skilled (senior) peers, then there is less incentive for more experienced employees to strive for promotion. Employees would prefer to decrease their workload and take on less responsibility, while earning a similar wage to their senior peers.

UQECON2021 (talk) 11:07, 6 April 2021 (UTC)
 * Effect on Turnover: If firms are incentivising new junior (low-skilled) employees with higher remuneration packages, then current employees (particularly high-skilled workers) may feel undervalued and thus, will be incentivised to look for new employment opportunities.