Wage Compression: The Silent Killer in America’s Tight Labor Market

As the United States grapples with a persistently tight labor market, employers have been offering enticing incentives to attract new hires amid widespread workforce shortages. However, these efforts have inadvertently given rise to another pressing issue that is silently wreaking havoc on companies, according to labor expert Jason Greer.

Greer, the founder of St. Louis-based labor management and employee relations firm Greer Consulting, Inc., has earned a reputation as “the Employee Whisperer” for his work with organizations ranging from small businesses to Fortune 500 giants like Nike and major employers such as the U.S. Army. His insights shed light on the growing problem of “wage compression.”

Wage compression occurs when long-term employees find themselves earning significantly less than new hires who receive more generous compensation for the same roles. Greer argues that this phenomenon is causing resentment within companies, leading to an array of problems, many of which companies may not even be aware of.

He illustrates this issue with the scenario of a dedicated employee who has served a company for a decade, giving their all to the job but is stuck at a fixed wage rate due to their longevity with the company. Meanwhile, the company hires a new employee to perform the same role but offers them a substantially higher wage. In many cases, the long-serving employee is asked to train the newcomer.

Greer points out that despite companies urging employees not to discuss their salaries, wage discussions are commonplace. This situation leads to long-term employees feeling undervalued and questioning the company’s fairness.

“This creates a toxic workplace environment because often, long-serving employees, unable to direct their anger at the company for fear of reprisals, take their frustrations out on the new hires who are better compensated,” Greer explains. Unfortunately, these new hires often bear the brunt of resentment, even though the situation is not their fault.

Moreover, this issue erodes employees’ trust in their employers, which can have far-reaching consequences.

According to Greer, wage compression is a significant driver behind the recent surge in unionization efforts. Employees who perceive their companies as unwilling to address wage disparities are increasingly turning to unions to advocate for their rights.

Additionally, wage compression has financial repercussions for companies. The cost of high employee turnover, including expenses related to recruiting, background checks, onboarding, and training, is a significant drain on resources. However, the real blow to businesses is the loss of long-tenured employees who have contributed significantly to their departments but were never compensated accordingly.

Greer emphasizes that these long-term employees often possess invaluable institutional knowledge and serve as trusted advisors to their colleagues. When they leave for more lucrative opportunities, companies not only lose their expertise but also their procedural knowledge, which can be challenging to replace.

In conclusion, wage compression is a silent, yet destructive force in the current labor market landscape. It strains employee morale, damages trust in organizations, and financially burdens companies. As the labor market remains tight, addressing this issue may prove vital to maintaining a healthy and motivated workforce.