Wage Drift - Definition & Meaning

Published in Human Resources Terms by MBA Skool Team

What is Wage Drift?

Wage drift is defined as the differential amount by which the wages paid to a worker exceeds the previously negotiated amount of wage, collectively agreed upon. The main reason for this occurring is the worker having worked for extended durations (excess overtime wages) or the ambient economic condition resulting in a shortage of worker availability. In the latter case, an employed worker will receive wages higher than the national wage rate.

In the field of human resources, wage drift poses a real problem for HR managers to precisely predict and fix wages, the reason being the factors causing wage drift mostly lies beyond the control of the recognised procedure of scheduling wages.

The mechanism of wage drift has two possible ways of occurrence. Firstly, when the earnings increase beyond the agreed upon terms, a worker’s earnings between two successive raises may increase without any change in the degree of utilisation of his labour. Or, secondly, the earnings may remain constant but his labour may be underutilised. When earnings increase faster than labour inputs, unit labour cost to the company will increase irrespective of the cause being a wage drift or not.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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