Wage Compression

Wage Compression refers to the reduction in differences between wages across different levels of a workforce. This phenomenon often occurs when the wages of lower-paid employees rise faster than those of higher-paid employees, or when top salaries are limited to reduce disparities. Wage compression can be driven by minimum wage increases, union negotiations, or organizational policies aiming to promote pay equity. In sociology, wage compression is studied to understand its impact on workplace dynamics, employee morale, and overall economic equality. While wage compression can lead to greater fairness and cohesion, it may also reduce incentives for high-skilled workers if wage differentials fail to reflect skill, experience, or responsibility. Sociologists explore wage compression to analyze its role in labor markets, social stratification, and efforts to address income inequality within societies.