Wages
1st year POE - Principles of Economics Notes
Wages
* Wages and Its Forms
* Factors Determining Real Wages
* Relative Wages
* Causes of Differences
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Wages
In very simple words, the remuneration that is made for the service of
the labour is called wages. Wage payment is essentially the price paid
for the particular commodity viz labour. Berham defines wages as:
"Sum of money paid under contract by an employer to a worker for the service rendered."
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Forms of Wages
Broadly speaking, wages are categorized as:
1. Nominal Wages
Nominal or money wages are the wages paid or received by the labour in
terms of money . Money is the principle factor in normal or money
wages. The wages are calculated in terms of money in this regard.
2. Real Wages
Real wages refer to the income of a worker in terms of real benefits. E.g. bonuses, holidays, transport.
In other words, the value of additional income is called real wages. It
is the real wages that enable us to clear that the worker really
earns.
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Factors Determining Real Wages
Some of the factors that determine real wages are as follows
1. Purchasing Power of Money
The purchasing power of money has great influence on the real wages.
The value of money keeps on changing constantly which varies inversely
with the price level. This purchasing power of money influences the
calculation how much the worker a worker earns since all the monitory
calculation depends on the value of money. The places where the prices
are high the real wage will be low and vice versa.
2. Subsidiary Wages
The worker earning other than regular wages have higher real wages. In
order to find the real earnings of a worker, we should not only
consider his salary but also the extra earning that he may be able to
make. A worker may work part time and in such case his real wage will be
higher as compared to the worker working only on regular wages.
3. Working Hours and Holidays
Real wages to a great extant depend upon the working hours and
holidays. Obviously a worker working for more time and enjoying less
holidays will have higher real wages. His income will always be higher
and so will be his real wages.
4. Future Prospects
Future prospects means opportunities for the future. A businessman
viewing a good prospect for his business in the future will pay higher
real wages to his workers so that they can work more willingly to make
best use of the opportunities of the future. However a business not
having very bright prospect may even offer higher wages.
5. Nature of Work
The occupation which require great amount of skills and whose nature
is quite dangerous offers high wages to the labours. The work requiring
more physical and mental capabilities should offer high money and
benefits to the labours.
6. Expenses
In order to calculate the real wages the expenses must also be
considered. The workers incurs certain expenditures which must be
deducted in order to get the final figures.
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Relative Wages
The concept of relative wages explains the comparison between money
and real wages. It explains that only the wages of labourers of
different occupations employment or grades are different from each
other. It tells that why some men working at the same place and at same
level in different organizations receive different wages.
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Causes of Differences
1. Differences in Efficiency of Labour
The labour to a great extant depends on its efficiency. This efficiency
may include education, necessary skills to perform a job condition of
work etc. As a general rule, the higher will be the wages and lower
efficiency, lower will be the wages. It implies that more efficient
workers are likely to earn higher wages as compared to inefficient once.
2. Training
Training is one of the important offers for the employees. Most of the
organizations after recruiting labour provide them proper training
necessary for their jobs. In this way skilled persons get a chance to
groom themselves during which they receive very minimum remuneration.
But as soon as they get trained they are offered respectable jobs and
are absorbed easily at high wages.
3. Regularity of Work
Regularity of work has an important impact on the wages of the worker.
Actually there are two categories of businesses viz: Seasonal i.e. for
limited period of time and Non Seasonal i.e. for whole or unlimited
period of time. Generally the labour workings in seasonal factories are
often paid higher wages as compared to those working in non-seasonal
ones. The simple reason behind it is that the organizations working
seasonally hire the service of the labour for the limited period of time
and thus pay them handsomely.
4. Degree of Trust and Responsibility
One of the major reasons of difference in the wages is the degree of
trust and responsibility. As a normal course the men working at
positions of high responsibility are usually highly paid. This is so
because their jobs require high degree of skill; sense of responsibility
and good decision-making abilities and this is what they are paid for.
5. Hours of Work
The working hours are also important in determinants of wages. The
workers working for more time are paid more wages as compared to the
workers working for less period of time even in the same organizations.
This is why the working hours are classified as part-time or full time
jobs.
6. Extra Benefits
A very interesting fact about wages is that the workers enjoying more
fringe benefits are often paid low wages. Usually the wages are high in
those occupations or business where such benefits are not offered. For
example in a factory a worker may be earning RS 1,800 but he may be
getting medical allowance, housing allowance, old age pension, bonuses
etc
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