Glossary Term: Wage Compression


Wage compression is a situation that can develop when gaps between the general wages in a particular industry shrink between employees regardless of a difference in knowledge, qualifications, skills or experience.

Why does wage compression occur in organizations?

Wage compression commonly occurs when starting salaries or hourly wages are set too close to the compensation of existing workers. In today’s labor market, companies are fighting hard to secure top talent—especially as demand is exceeding supply.

Is wage compression illegal?

Wage compression is not by itself illegal, but it can be a slippery slope to other harmful or illegal practices. One group that experiences wage compressions in the current market is lower-paid hourly workers.

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