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Defining Wage Drift
The difference or change between the wage negotiated between the company and the worker versus the wage actually paid is the wage drift. Wage drift may occur because of factors such as overtime, company bonuses or additional responsibilities.
Types of Wage Drifts
Wage drift is of 2 types:
Positive wage drift
Positive wage drift is when the employee’s earnings exceed their “agreed upon” wage. Earnings may exceed because of overtime, company bonus, additional responsibilities and shortage of workforce.
Negative wage drift
Negative wage drift is when the employee’s actual earnings fall below the contractual wage. This could be a result of pay cuts, excessive workforce and reduced working hours.
| Positive Wage Drift | Negative Wage Drift |
| | |
| When the employee’s earnings exceed their agreed upon wage. | When the employee’s actual earnings fall below the contractual wage. |
| This is usually because of overtime, company bonus, additional responsibilities and shortage of workforce. | This could be a result of pay cuts, excessive workforce and reduced working hours. |
Causes of Wage Drift
Wage drift can be caused by uneven demand in the market, lack of workforce or such situations where employees need to work overtime to meet the demand. Factors such as:
Overtime
When employees put in extra work hours to meet the company’s requirements, the company must pay its employees for the extra time in addition to their salaries. Overtime is considered a factor only when the employees are paid for overtime
Company bonus
The company issues bonuses to their employees to show appreciation. Bonus can be issued occasionally, hourly or on a specific basis. There can be many reasons for why the company may issue bonuses.
Additional responsibilities
An employee may be allotted additional responsibilities due to shortage in the workforce or because of hiring freeze. When an employee deals with additional responsibility, the company offers them additional pay.
Wage drift may also occur when a worker’s wage stays the same, but their work output or responsibility is reduced, that means the workforce is underused, which costs the company, other reasons may include fluctuating market demand, changing work patterns, economic conditions, etc.
Difference Between Salaries and Wages
The major difference between the salaries and wages is the way they are paid. Salaries are a fixed amount paid monthly or annually, whereas wages are based on the number of hours put in work. Unlike wages, salaries are more of a formal procedure, generally for professionals.
Advantages and Disadvantages of Wage Drift
Wage drift can be a powerful tool. It has its advantages and disadvantages.
ADVANTAGES
Enhances job satisfaction
People are happier and more satisfied with their jobs. They also feel more devoted to their organisation.
Improves working conditions
Companies seldom use wage drifts as a tool to improve working conditions.
Keeps employees motivated
Wage drift motivates employees to work harder and be more productive in anticipation of bonuses.
DISADVANTAGES
Creates inequality
Wage drifts may harbour feelings of inequality and lead to conflict when it comes to income. This is because not all employees are offered equal opportunities.
Burden on administration
Managing wage drift is a complex procedure. It also costs employers more money because employees continue to earn more without working more.
Negative effects
Wage drift can be a result of unforeseeable factors and makes the process of budgeting complex. A few negative effects as a result of wage shift are-
Employee discontent
Wage drift fosters discontent and feeling of biasness among employees who don’t receive equal increase in wages. This may have a negative impact on the company.
Labour market curve
Wage drift usually distorts the labour market as it unnaturally inflates the market wages. This may create obstacles for a company in attracting employees.
Influences unemployment
Wage drift may lead to unemployment as companies may increase the responsibility of existing employees instead of hiring new labour because of the increased labour cost.
Conclusion
The difference or change between the wage negotiated between the company and the worker versus the wage actually paid is the wage drift. Wage drift can be characterized as positive and negative.
Wage drift is usually the result of overtime, bonuses, and increased work responsibilities. Wage drift can enhance job satisfaction and motivate employees, but it can also harbor inequality.
FAQs
Q1. What factors contribute to wage drift?
Factors such as overtime, company bonus, additional responsibilities and shortage of workforce may contribute to wage drift.
Q2. How can you compensate for wage drift?
A couple ways to compensate employees is paying them in dues and delayed bonuses for when the company is struggling financially.
Q4. Which employees are likely to be affected by wage drift?
Employees more prone to be affected by wage drift are- employees in a small workforce, employees paid hourly, employees who receive overtime payouts.