The Implications of Rising Wages: From a Human Resource Perspective
Sharon Alman and Jaquinthia Warren
Professional Studies-Southwestern College
HRD 321-Compensation and Benefits
Professor Chris Harris
1 May 2024
Rising Wages
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Introduction
The Human Resources (HR) department faces significant challenges due to significant wage growth among jobs, which have significantly impacted organizations. The HR department is currently evaluating its strategies, which could potentially lead to additional operational changes. The outcome is what many people call the “wage compression” phenomenon, which is characterized by shrinking differences in people’s salaries. This phenomenon is an effect, due to ignoring the wage gaps between various job levels that face the threat to equity by the employees inside an organization who believe that pay disparities do not adequately reflect the differences in job responsibilities or experience levels. Beyond the internal framework of compensation, the rise of minimum wages ends up affecting most aspects of HR, including workforce management, where HR managers must continually respond to compensating employees` psychic earnings within limited budget constraints.
Rising wages affect the recruitment and retention strategy. For instance, when many
candidates apply for low-level positions and base wages increase, HR needs to enhance the
benefits package for higher-level positions to maintain their competitiveness in the job market.
Staffing is one of the major organizational challenges, and this staffing issue can be managed by
doing some basic tasks such as restructuring the organizational jobs or roles and re-evaluating
the operational efficiency of the organization. In this context, HR experts consider the minimum
wage hike a crucial issue, given its close connection to significant issues of organizational health
and survival. These issues require exclusive management personnel to adopt a practical approach
to managing the consequences.
Historical Context
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The pay line represents the dynamic features of the nature of labor and remuneration that
happened over these eras, transcending the history of wage dynamics and the major economic,
social, and political developments over the centuries. We predict that the Industrial Revolution’s
beginning of wage dependency on market forces paired with total regulatory control will lead to
large pay disparities. Similarly, the industry’s major economies introduced minimum wages,
marking a critical turning point in the lives of workers who had previously lived in appalling
conditions. The emergence of trade unions and collective bargaining as important tools for
workers to unite and fight for improved pay and working conditions gave rise to a new aspect of
the workers’ wage structure—one that moved it closer to relative equity. In the current setting,
globalization has advanced to the point that workplaces are across state boundaries, escalating
competitiveness and embracing many industries (Brummund & Strain, 2020). As a result of the
simultaneous technological revolution, people who are more technically knowledgeable are now
in demand for positions that require less skilled labor. This also contributed to the changing
dynamics of salaries. Additionally, they may be responsible for shaping these elements in
analyzing the labor market as the leaders in recognizing the dynamic aspects of globalization and
technological evolution.
Case Law that Influenced Pay
Several recent state and local governments, including the Fair Labor Standards Act
(FLSA) of 1938, the Equal Pay Act of 1963, the Ledbetter Act of 2009, and the minimum wage
increase, have undoubtedly reshaped American wage dynamics. The FLSA of 1938 is one of the
most vital and foundational laws in the US economy that recognized many standards necessary
for labor workers, such as the introduction of the minimum standard for payment, a strategy for
overtime, and child employment terms. The passing of the FLSA was critical for economy
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regulation because it established a national norm for the minimum wage and prevented
unjustified wage decreases due to social and financial hardships. The FSLA also established
workers’ rights to get overtime, that is, payment more than their basic salary by one and a half
times the regular rate of work they have done. To achieve this, the FSLA also imposed certain
separate record-keeping obligations on employers, under which they should report hours worked
and wages paid to their employees.
In addition, the FLSA set a landmark regulation for child labor, prohibiting young
individuals from working in discriminatory conditions, limiting the number of working hours for
minors, and significantly expanding the range of jobs and occupations they could pursue
(Brummund & Strain, 2020). We can consider a historical change here, as the FLSA now
encompasses employment standards previously set independently by private, public, and
governmental enterprises. To a certain extent, enacting these measures under the Fair Labor
Standard Act (FLSA) marked a foundational shift towards greater regulatory oversight and
protection in the labor market, which influenced both the type and mode of work of both private
and public sector workers, including state, local, and federal employees. The FLSA played an
active role in how the government monitored employees’ rights and paved the way for future
labor rights.
The Equal Pay Act of 1963, a significant addition to the Fair Labor Standards Act
(FLSA), aims to eliminate gender-based wage disparities. The bill now requires there to be pay
equity for both sexes, meaning that they will receive the same amount of money when they do
the same amount of work in the same workplace. For example, the pay for work should be equal
or nearest to an equal amount based on similar task, skill, effort, and responsibility basis. The
Equal Pay Act is indispensable in closing the gender pay gap, paying special attention to
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enforcing parity. Moreover, such changes do not end with workers earning more; rather, they
bring the greatest change in the human resources (HR) area within most organizations (Jordà &
Nechio, 2023). To ensure adherence to the Act, HR policies had to be modified, and they had to
apply more transparent and equivalent practices for determining compensation and performance
evaluation. It reinforces the notion of gender equality by providing a standard that limits genderbased salary dissipation and creates a more loyal work environment. Consequently, many
acknowledge the Equal Pay Act as the primary catalyst for workplace equality.
The Ledbetter Act of 2009 is another noteworthy extension of the Fair Labor Standards
Act (FLSA) and the Equal Pay Act of 1963. The Ledbetter Act of 2009 renewed a fair pay
balance in standard working conditions, extending the deadline of the statute of limitations for
filing any case of pay discrimination. Parliament was not only embodying the need for parity in
wages but also shining a spotlight on a crucial step in HR practices, which is transparency. This
legal movement has long concealed the concerns of pay disparities that compromise gender and
race neutrality (Gerhart & Feng, 2021). It has become a much more charged and visible
phenomenon, encouraging companies to take more actions to secure the fairness and equality of
payment systems throughout the workforce.
The new minimum wage law has also played a vital role in fair compensation for
employees. Over the last several years, many US states and towns have implemented minimum
wage regulations higher than the federal Fair Labor Standards Act minimum wage to address the
issue of low wages. A localized minimum wage is a way to account for the rising cost of living in
specific locations and regional variations in the economy’s structure. Following this law, most
well-known companies in those areas will have to raise their standard pay scales to reflect the
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minimum wage. This not only makes it easier for the business to comply with the law, but it also
plays a crucial role in ensuring employees earn enough to maintain their most basic needs.
Considering the competitive job market, raising the minimum wage gives employers a
competitive advantage. It may attract more candidates, particularly those seeking employment in
lower-paying industries, where compensation offers may play a role in their decision.
Consequently, businesses must either meet these legally mandated minimums or offer even
higher compensation to attract and retain distinguished personnel (Ansari et al., 2022). This
transition forces companies to critically reevaluate all their operating expenses and pay structure
plans. The company must review its pay plans, employee benefits, and even the effectiveness of
its operating structures to offset the increased labor expenses, maintain a competitive edge, and
still turn a profit. Each of the legal frameworks has played a significant role in shaping the
compensation strategy in the organization; hence, it has maintained a level of pay that is fair and
has offered guidelines for maintaining compliance as well as keeping the competitive
environment in the labor market.
The Impact of Rising Wages on the HR department
When the differences between entry-level and more experienced jobs outpace the pay
rise, a phenomenon known as wage compression may occur. This is due to increased
compensation for unskilled workers. The task of wage acceleration, especially in manual jobs,
makes this challenge more complex for HR professionals. Wage compression presents the
primary challenges of addressing employee relations, internal equity, and pay parity within
organizations (Gerhart & Feng, 2021). The issue arises when certain job categories experience
faster income growth than others, leading to disparities in compensation across different job
levels. These disparities might emit feelings of distress among workers and feelings of inequity,
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which could lead to an increase in employee turnover. When this occurs, employees leave for
more accommodating positions that fairly compensate them for their skills and qualifications.
HR professionals must exercise creativity in designing a pay system that prevents criticism of
overpaid or underpaid employees, instead establishing a fair and inspiring pay scale (Jain et al.,
2022). It is critical that HR professionals design a career advancement plan that will provide
employees with the expectation of a bright future in which they can advance their careers and
further their professional development within the organization.
In terms of hiring and retaining employees, there would be a significant shift in the way
the labor market views lower-paying employment due to changes in income taxes and job
quality. This would lead to an increase in the number of individuals seeking these positions.
Therefore, to stay competitive through current trends, HR departments need to review their
employee compensation plans to ensure they are current and fair, while accounting for mid-level
and senior roles, where the salary is marginally greater than that of an entry-level function (Jordà
& Nechio, 2023). HR departments may need to increase the compensation of leaders and
supervisors to attract individuals for higher-level positions, which may offer more extensive
benefits or greater opportunities for career development and advancement. These changes can
make the company more appealing employer to prospective and current workers, guaranteeing
that the company maintains its advantage in the market for the required workforce.
Due to the increase in wages, HR professionals have developed a strategic plan of action
to enhance employee’s development with training programs. Organizations can revitalize the
workforce by nurturing a more welcoming learning environment that can amplify an
organizational intellectual atmosphere, thus promoting engagement, productivity, and employee
satisfaction. Continuous training and professional growth in employment law are essential for
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understanding wage regulation consequences and fulfilling legal obligations. It enables the
organization to avoid costly legal penalties from a lack of knowledge.
On the other hand, from the perspective of organizational strategy and culture, wage
increases necessitate compensation, particularly in how companies organize their expenses and
strategies. Organization may also choose to counter the additional labor costs, businesses may
decide to employ automation tools at some stages of operation to drive down labor-related bills,
or the companies might realign their pricing strategies to ensure financial sustainability
altogether (Brummund & Strain, 2020). Organizations that adopt a decent and just payment
policy not only ensures the company’s legal obligations but also enhances employee
performance. This results in high employee satisfaction and loyalty, which should aid in the
sustainability of employees. Fostering a culture within an organization that displays a positive
corporate image creates an employee environment that stays devoted and engaged to the
organization’s longevity.
Conclusion
Finally, as compensation increases, HR professional roles expand significantly as well.
The HR professionals within the HR department play a vital role in the creation of a skilled,
thriving workforce capable of spurring organizational growth even in an increasingly competitive
job market. To effectively manage operational efficiency and regulatory compliance, HR
professionals should not limit themselves to a pay structure but also consider wider strategic
actions. Economic conditions, technology, and legislation may influence the constant
development of this industry. HR professionals must diligently and vigilantly monitor and react
to it. HR departments can take proactive or reactive measures to address internal equity issues
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arising from wage dynamics or labor laws, ensuring the upholding of workers’ rights, while
preparing organizations for future challenges.
References
Ansari, A., Riono, S. B., & Indriyani, A. (2022, November). The study conducted an analysis of
the impact of economic growth, regional minimum wage, and inflation on the
unemployment rate in Brebes Regency. In Tegal International Conference on Applied
Social Science & Humanities (TICASSH 2022) (pp. 393–402). Atlantis Press.
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Brummund, P., & Strain, M. R. (2020). When inflation indexing is present, does employment
respond differently to minimum wage increases? Journal of Human Resources, 55(3),
999–1024.
Carstens, A. (2022). Inflation has returned. I delivered a speech at the International Center for
Monetary and Banking Studies in Geneva on May 5.
Gerhart, B., & Feng, J. (2021). The resource-based view of the firm, human resources, and
human capital: Progress and prospects. Journal of management, 47(7), 1796-1819.
Jain, M., Kostyshyna, O., & Zhang, X. (2022). How do people feel about price and wage
inflation? (No. 2022-34). Bank of Canada Staff Working Paper.
Jordà, Ò., & Nechio, F. (2023). Since the pandemic, the study has focused on inflation and wage
growth. European Economic Review, 156, 104474.