What phenomenon occurs due to an increase in prescribed wage rates?

The phenomenon that occurs due to an increase in prescribed wage rates is wage distortion. Wage distortion refers to the misalignment that can happen in the wage structure as a result of raises in base wages. When wages are increased across various positions, it can lead to situations where the differences in pay do not appropriately reflect the value of the roles or the skill levels required. Higher wage rates for entry-level positions or roles that require less skill can distort the competitive compensation landscape.

Wage compression, in contrast, typically addresses the scenario where the pay difference between skilled and unskilled workers narrows, often due to higher increases for lower-paid positions. Wage fluctuation refers to more unpredictable or variable changes in wages rather than systematic changes due to prescribed rates. Wage disparity highlights the inequality in earnings across different groups or positions but does not specifically capture the result of prescribed wage increases in the same way that wage distortion does.

The concept of wage distortion emphasizes how adjustments in pay can create imbalances, which is a vital consideration for employers aiming to maintain a fair and motivating compensation system.