Download Economics - Wages - Notes - Economics and more Study notes Economics in PDF only on Docsity! WAGES Meanings of Wages The term, ‘wages’ means payments made for the services of labour. A wage may be as a sum of money paid under contract by an employer to a worker for services rendered. Nominal Wages vs. Real Wages. According to the classical wage theory, labour supply was considered a function of real wages. According to Keynes, the workers acted irrationally and generally bargained for money wages and they sharply reacted against any cut in money wages. That is, a rise in prices does not offend labour as much as a cut in the money wage. The money wage is also known as nominal wage. Nominal wages are wages paid in terms of money. After deflating nominal wages with the help of price index, we obtain real wages. The main factors influencing on real wages are (i) Purchasing Power of Money. When comparing wages at different places and at different times, the changes in the purchasing power of money must be considered. The purchasing power of money varies inversely with the price level. This means that higher the prices, the lower the purchasing power of money, and vice versa. It is generally supposed that the prices rise faster than money wages during the times of rising prices and fall faster than money wages during the periods of falling prices. The result is that money wages decline in the former and rise in the latter case. (ii) Subsidiary Earnings. In addition to the regular money wage, an employee has extra earnings in the form of money or goods. For example, free board and lodging are provided to the domestic servants. Subsidiary earnings may also arise from opportunities of employment available to other members of the worker’s family. (iii) Extra Work without Extra Payment. If an employee is required to do extra work without any compensation, his real wages are less by that extent. Maid servants are paid for doing their duty during working hours, but quite often they are required to work late. This means that their real earnings are reduced to that extent. (iv) Regularity or Irregularity of Employment. Regular employments may give lower money wages, but the real wages may be higher than irregular and employments which give high money wages. For instance, a person with Rs. 50 daily wage but whose employment is intermittent, may not be so well off as another, who earns regularly Rs. 40 day.
