APA Dictionary of Psychology

an internal inequity that occurs when the salary differential between newly hired employees and established employees is smaller than it should be. If left unchecked, wage compression leads to wage inversion, in which the salary of more recent employees is greater than that of established or more senior employees. Wage expansion is the increase in salaries of established employees as a countermeasure to wage compression. Also called salary compression. See also external inequity; overpayment inequity; underpayment inequity.