ICS FA ICom Notes Class XI Principles of Economics Wages and Its Forms, Factors Determining Real Wages and Relative Wages 

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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.”

Forms of Wages

Broadly speaking, wages are categorized as:

1. Normal Wages

Normal 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.

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.

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.