Wages: Meaning, Methods and Factor Influencing Real Wages

Wages are the reward paid to the worker for his labour. The term ‘labour’, as used in Economics, has a broad meaning. Read this article to learn about Meaning of Wages, Methods of Wage Payment, Real and Nominal Wages and Factors Influencing Real Wages.

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Meaning of Wages:

Wages are the reward paid to the worker for his labour. The term ‘labour’, as used in Economics, has a broad meaning.

It includes the work of all who work for a living, whether this work is physical or mental.

It also includes the exertions of independent professional men and women like doctors, lawyers, musicians and painters who render service for money.

In fact, ‘labour’ in Economics means all kind of work for which a reward is paid. Any type of reward for human exertion whether paid by hour, day, month or year and paid in cash, kind, or both is called wages. “A wage may be defined as a sum of money paid under contract by an employer to a worker for services rendered.”— (Ben- ham). It s essentially a price for a particular commodity, viz., labour services.

Methods of Wage Payment:

From the point of view of payment, wages can be classified as:

(a) Cash wages or wages in kind, according as the payment is made in cash or kind;

(b) Time wages, when the wage rate is fixed per hour, per day or per month;

(c) Piece wages, when the worker is paid according to the work done;

(d) Task wages, which is a payment on a contract basis, i.e., payment for finishing a specified job.

Wages are given different names, e.g., salaries for the higher staff, pay to the lower staff like clerks and typists, wages for the workers, fees for persons in independent professions like lawyers and doctors, commission for middle men, brokers, etc., and allowance for special work or for special reasons, e.g., travelling allowance, dearness allowance, etc.

Real Wages and Nominal Wages:

The money paid to a worker as a reward for his work is known as nominal wages. But what is money wanted for? Obviously for the goods and services it can buy. By ‘real wages’, we understand the satisfaction that a labourer gets from spending his money wages in the form of necessaries, comforts and luxuries. It means the total benefits, whether in cash or kind, that a worker enjoys by working at a certain job.

Factors Influencing Real Wages:

The following factors have to be taken into account when estimating real wages:

Purchasing Power of Money:

Money is only a medium of exchange. We value it for its power to buy goods and services. Let us take an example. We see that, according to the general index maintained by the Economic Adviser to the Government of India, average wholesale prices have gone up to nearly double as compared to 100 in 1970-71. The monthly earnings of persons with fixed salaries have not gone up to the same extent.

They are, therefore, proportionately much lower than before. Therefore, to say that salaries have gone up is a pitiful joke! For such persons, real wages have fallen, as the purchasing power of money has gone down to about 50%. Price level, therefore, is an essential factor to be taken into account while estimating real wages of a Worker or a group of workers.

Additional Receipts in Kind:

The money income of a person may be increased by free quarters, cheap rations, a free uniform, special gifts on festival days, and the like. A person improves his living from such sources. A pension after retirement or a free bungalow adds to an officer’s real income. Hence, such additional receipts must be taken into account while estimating a person’s real income.

Possibility of Supplementing Income:

Some employments are such as give time or create an opportunity for increasing one’s income. Thus, a professor may write articles or books or a teacher may coach students privately and supplement his income. Salaried doctor may have private practice. Such supplementary earnings add to a person’s real income.

Working Hours:

We have also to consider the hours worked per day, the days per week, as well as the off-days in a year while computing a person’s real income. Frequent rest intervals-add to one’s real wages and comfort. In some occupations, workers have to put in extra work without extra payment. For instance, the staff of a bank has a hard time at the half-yearly close. Sometimes senior officers get unauthorized work from their juniors. Such unpaid over-time work reduces real wages.

Regularity of Employment:

If a person is frequently out of work, even a high money-wage ultimately means a low real wage. Continuous employment on a lower wage is preferred to work which is more paying but is uncertain or temporary. That is why an ordinary lawyer or a doctor may take to service as against independent practice.

Nature of Job:

Certain employments are very risky. Others reduce the length of a worker’s life, e.g., driving railway engine. The life of an air pilot in action is said to be a few months on an average. In many vocations accidents are common. Money wages may be high in such cases, but, taking all things into consideration, the real wages would be low.

Future Prospects:

One may accept even a modest start if the future prospects are bright. We are struck dumb when we find school teachers after twenty years’ hard work getting a bare three hundred rupees a month! Such prospects would not prove attractive if teaches could not make money from private tuition work.

Expenses of Starting a Trade:

Some occupations require much initial expenditure. Good furniture and other equipment, latest surgical instruments and medicines are necessary for a doctor to start his practice. One forms a poor impression of a lawyer if his office is not furnished with at least half a dozen book-shelves stuffed with bulky volumes. Such expenses have to be deducted from money wages when estimating real wages. These are some of the factors that have to be taken into account while estimating the real wage of a worker as distinguished from his nominal wage.