Wage Drift

Wage drift refers to the difference between the agreed-upon or negotiated base wages and the actual wages paid to employees. This discrepancy typically occurs when workers receive additional compensation above their base pay, such as overtime pay, bonuses, or other forms of variable pay. Wage drift is often associated with periods of economic growth, low unemployment, and tight labor markets. Employers may use additional compensation to attract and retain skilled workers or reward them for increased productivity.

Purpose and Role: The purpose of recognizing wage drift is to highlight the difference between negotiated wages and employee compensation. By identifying wage drift, employers, employees, and labor unions can better understand the factors that contribute to variations in pay and make more informed decisions about wage negotiations and compensation policies.


  • Base wages: The agreed-upon or negotiated wages form the foundation of an employee's compensation package.
  • Additional compensation: Payments made to employees beyond their base wages, including overtime pay, bonuses, commissions, and other forms of variable pay.
  • Economic conditions: Wage drift is often influenced by broader economic conditions, such as the state of the labor market, the overall economic growth, and industry-specific trends.

Importance: Wage drift is an important concept because it can provide insights into the dynamics of the labor market and the factors that influence employees' actual compensation. Recognizing wage drift can help employers and labor unions negotiate more effective wage agreements and tailor compensation policies to meet the needs and expectations of employees better.

Benefits and Pros:

  • Flexibility: Wage drift can provide employers with the flexibility to adjust employee compensation in response to changing economic conditions or labor market trends without renegotiating base wages.
  • Incentive for productivity: Additional compensation, such as bonuses and commissions, can serve as an incentive for employees to increase their productivity or performance, potentially benefiting both the employee and the employer.
  • Attract and retain talent: During periods of low unemployment or tight labor markets, offering additional compensation can help employers attract and retain skilled workers.


  • Wage instability: Wage drift can contribute to wage instability for employees, as their actual compensation may fluctuate depending on economic conditions, work hours, or performance.
  • Inequality: Wage drift can potentially exacerbate wage inequality, as employees who receive additional compensation may see their wages rise more quickly than those who do not.
  • Complicates wage negotiations: Wage drift can make it more difficult for employers and labor unions to negotiate wage agreements. The discrepancy between base wages and actual compensation can lead to differing perceptions of employee pay.

In summary, wage drift refers to the difference between an employee's negotiated base wages and the actual compensation they receive, often due to additional payments such as overtime, bonuses, or commissions. Wage drift can provide employers with flexibility in adjusting employee compensation and serve as an incentive for productivity, but it can also contribute to wage instability and inequality. Understanding wage drift is important for making informed decisions about wage negotiations and compensation policies.

See Also