Wages and Differentials
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.
A wage is a form of remuneration paid by an employer to an employee calculated on some piece or unit basis. Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees.
Compensation is a monetary benefit given to employees in return for the services provided by them.
NOMINAL WAGES
If you are paid by the hour, you are paid a nominal wage, which is simply the amount of money that you earn per hour of labor.
If you earn $20.00 per hour, your nominal wage is $20.00.
However, the nominal wage really doesn’t tell you what your purchasing power is because the nominal wage isn’t adjusted for inflation, which is a rise in the general price level.
REAL WAGES
Real wage, on the other hand, takes inflation into account.
An increase in real wages occurs when wages rise more quickly than inflation.
On the other hand, if real wages rise more slowly than inflation, then your real wages – your purchasing power – has declined.
It’s important for you to know your real wage to determine if an increase in your wage is actually increasing your wealth, simply keeping pace with rising costs, or worse, falling behind rising prices.
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.
(v) Conditions of Work: The conditions of work such as humanistic approach sympathetic nature of an employer etc., should be taken into account in estimating a person’s earnings.
(vi) Future Prospects: A low money income will be considered a high real wage if there are good prospects of a rise in the future. On the other hand, a high initial salary may not be considered as good in the absence of prospects for a further rise.
WAGE DIFFERENTIALS
While analysis of the general wage level is important for comparing different countries and times, we often want to understand wage differentials.
In practice, wage rates differ enormously. The average wage is as hard to define as the average person.
There are major differences in earnings among broad industry groups. Sectors with small firms such as farming, retail trade, or private households tend to pay low wages, while the larger firms in manufacturing pay twice as much.
But within major sectors there are large variations that depend on worker skills and market conditions-fast-food workers make much less than doctors even though they all provide services.
There has to be a difference in the wage of men/women in the same organization/firm based on their work experience and rank.
It is essential to maintain a wage difference to indicate that with more wage come more responsibility in the organization/firm.
CAUSES WHICH CREATE DIFFERENCES IN WAGES IN DIFFERENT EMPLOYMENTS
1.Difference in efficiency
2.Future Prospects
3.Collective Bargaining
4.Sex
5.Firm size
6.Occupation
7.Age
8.Education
FACTORS INFLUENCING ON REAL WAGE
1.Purchasing Power of Money
2.Extra Income
3.Conditions of Work
4.Nature of Job
5.Future Prospects
6.Social Prestige
7.Occupational Expenses
8.Timely Payment
THE MAIN CAUSES WHICH CREATE DIFFERENCES IN WAGES IN DIFFERENT EMPLOYMENTS ARE:-
(i) Difference in efficiency: These may be due to different inborn qualities, education, training, and conditions under which work is performed. Hence, wages should vary according to efficiencies.
(ii) Existence of Non-competing Groups: The non-computing groups arise due to the difficulties in the way of mobility of labour from low-paid to high-paid employments. These difficulties may be due to geographical, social or economic reasons. Besides, they may arise from lack of transport facilities, existence of family ties and caste barriers.
(iii) Difficulty of Learning a Trade: The number of those who can master difficult trades is small. Their supply is inelastic less than demand for them and their wages are normally will be higher.
(iv) Future Prospects: An occupation provides opportunities for future promotion, then people will accept a lower pay, as against another occupation offering higher initial rewards where chances of rise in future are less.
(v) Hazardous and dangerous occupations generally offer higher emoluments.
(vi) Regularity or irregularity of employment also exerts a strong influence on the level of wages.
(vii) Collective Bargaining: The differences in the strength and militancy of trade unions also account for differences in wages in different industries.