Economics: Wages

1. Meaning of wages
2. Types of wage
3. Wage rate
4. Types of wage rate
5. Factors responsible for variation in wages

Meaning of Wages

Wages can be defined as the payment made by the entrepreneur to the labor for services rendered in the process of production. Wage is the reward for labor as later discussed in the factors of production. It is the reward paid for the service of a labor.

A wage is monetary compensation (or remuneration) paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.

Types of wages

The following are the types of wages

1. Nominal Wages: this is also refers to as money wage, it is the total amount of money given to a particular labor for the work done at a particular period in time; it is paid in a monetary term.
2. Real Wages: It is the purchasing power of a labor, it is the total amount or quantity of goods and services a labor can use his/ her money can buy.

Wage Rate

A wage rate is a regular payment, usually on an hourly, daily, or weekly basis, made by an employer to an employee, especially for manual or unskilled work.

It is defined as the rate at which a labor is paid for the services it renders in production.

Types of wage rates

1. Time rate system: This is the type of wage rate paid to laborers based on the number of hours worked, it basically applied to labors whose wages are paid hourly, daily or on monthly basis.

Situations where time rate system can be applied are

• Time rate is applied when the quality of work done is more important than quantity of work.
• when giving of incentives to workers is not necessary
• When the quantity of work done is not easy to measure
• When some certain jobs may not be done for a long period of time

2. Piece rate system: This is the wage paid to workers based on the work done i.e. workers are paid based on their output

Situations where piece rate system is applied

• Where incentives to workers is encouraged
• Where the outputs of workers can easily be measured
• Where the entrepreneur is expecting a large scale of production
• An organization where supervision may not be necessary.

 Factors responsible for variation in wages

The following factors are responsible for differences in the wages paid to workers

1. Skills/training: Jobs requiring higher level of skills and training usually fetch higher remuneration
2. Education/qualifications: Again jobs requiring higher level of education/qualification are paid higher remunerations.
3. Experience: People with vast experience will get higher remuneration as compared to a person with lesser experience.
4. Level of Responsibility: Jobs with greater responsibilities are usually paid more.
5. Geographical Area: Jobs located in urban areas are usually carrying higher remunerations because of higher living costs in cities. People working in treacherous geographical areas may get extra remuneration in the form of additional allowances.
6. Trade union membership: Trade Union members might end up negotiating better remunerations then non-trade union members.
7. Demand factors: Firms producing goods and services which are high in demand usually pay better remunerations to their workers.
8. Level of risk associated with a job: certain jobs like piloting, army or petroleum engineering are risky compare to some other jobs thereby making the salary of such to be high.
9. Level of productivity: A worker is paid more when there is high level of productivity, this is because the higher the productivity of a worker the higher the wages and vice versa

Test and exercise

1. ———– can be defined as the payment made to labor for the services they render in production. (a) Interest (b) premium (c) wages (d) rent. ans (c)
2. The following can help to determine the variation in wages except (a) geographical area (b) level of productivity (c) demand factors (d) All of the above.ans (d)
3. The type of wages that state the value of what the money can buy is (a) nominal wage (b) real wage (c) time rate system (d) piece rate system. ans (b)
4. The type of wage rate paid to labors based on the work done is (a) piece rate system (b) time rate system (c) nominal wage system (d) real wage system. ans (a)
5. Another word for nominal wage is (a) real wage (b) wage rate (c) money wage (d) sales wage. ans (c)

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