What Is the Meaning Of Wage Drift & Its Importance

Duration: 5-6 minutes

Meaning of Wage Drift

The wage drift is the difference changing between the wage negotiated between the company and the worker versus the wage paid. The wage might drift due to factors such as overtime, company bonuses, or additional responsibilities.

Types of Wage Drifts

There are 2 types of wage drifts:

• Positive Wage Drift: The positive wage drift is the situation where the employee''s earnings are above and beyond the ""agreed upon"" wage. Earnings may be more due to overtime, company bonus, additional responsibilities, and shortage of workforce.
• Negative Wage Drift: Negative wage drift occurs when an employee''s earnings fall below his contractual wage. This could be a result of pay cuts, excessive workforce, and reduced working hours.

Positive Wage Drift

When the employee''s pay exceeds his contractual wage. This typically occurs as a result of overtime, company bonuses, and adding of more responsibilities and surplus of workforce.

Negative Wage Drift

When the employee''s contractual pay is less than his actual pay. This can occur as a result of the reduction in wages, surplus workforce, and also cutting the hours of work.

Reasons for Wage Drift

Wage drift can be caused by uneven demand in the market, lack of workforce, or situations in which employees have to work overtime to meet the demand. Factors include the following:

• Overtime: When the employees work overtime to accomplish the needs of the company, the company needs to pay its employees with additional salaries. Overtime is only regarded as a factor if the employees are being paid for the extra working time.
• Company Bonus: The company issues bonuses to their employees as a token of appreciation. Bonuses can be given occasionally, by the hour, or on a specific basis. There can be many reasons for which the company may issue bonuses.
• Additional Responsibilities: An employee may be given additional responsibilities either due to a shortage in the workforce or because of a hiring freeze. In such cases, where the employee is taking on additional responsibility, the company pays him additional wages.

Wage drift may also be caused when a worker''s wage stays the same, but the amount of work produced or the level of responsibility is reduced; this implies the corresponding workforce is under-utilized and thus costs the company. Other reasons might involve variations in market demand, alteration of work patterns, changing economic conditions, etc.

The Distinction Between Salaries and Wages

The major difference between salaries and wages is the mode of payment. Salaries are a fixed amount paid on a per month or per annum basis, whereas wages are paid on the number of hours spent at work. Salaries are more of a formal procedure and practice, whereas wages are paid to professionals.

Advantages and Disadvantages of Wage Drift

Advantages

• Increases Job Satisfaction: Employees are more satisfied with their jobs and are happily contented. They also feel more attached to their organization.
• Balances Working Conditions: Organizations rarely practice wage drift as an instrument to balance the working conditions of employees.
• Keeps Staff Motivated: Wage drift keeps the employees motivated to work harder and more effectively as they expect to receive their bonuses.

Disadvantages

• Cause Inequality: Wage drifts may harbor feelings of inequality and culminate in conflict when it comes to matters of income. This is because not all employees are offered equal opportunities.
• Administerial Burden: Wage drift management is a complicated procedure. It increases the cost to the employer as the employees continue receiving more while not working more.
• Negative Impacts: Wage drift is the result of unforeseeable factors and makes the process of budgeting complex. Some bad impacts as a result of wage drift are:
• Employee Discontent: Wage drift fosters discontent and feelings of bias in employees who don''t receive equal increases in wages. This may at times have a negative impact on the company.
• Labour Market Curve: Wage drift distorts the labor market, unrealistically inflating the market wages, and therefore, disallows the creation of additional employees.
• It Inflates Unemployment: Wage drift may result in added workloads being assigned to existing employees instead of employing more labor to avoid adding to the increase in the cost of labor.

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