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Price Level, Social Prestige, Conditions Of Work

 Price Level, Social Prestige, Conditions of Work

Meaning

            Wages are payment for the services of labour, whether mental or physical. Though in ordinary language an office executive, a minister or a lecturer is said to receive a salary, a lawyer or a doctor a fee and a skilled or unskilled worker a wage yet in economics no such distinctions are made for different services and all of them are said to receive a wage. Conversely wages include fees, commissions and salaries. It is another thing that some may be receiving more in the form of real wages and vice versa.

            Time and Piece Wages – Wages may be paid weekly, fortnightly or monthly and partly at the end of the year in the form of bonus. These are time wages. But the bonus may be a task wage if a work is finished within a specified period that. Sometimes, time wages are supplemented by wages earned by working extra time. They are over time wages.

Wages are also paid in accordance with the amount of work done say in a shoe factory or a tailoring department as per one pair of shoes or pants manufactured. If the rate per pair of shoes or for pants is $10, a worker will be paid according to the number of pairs of shoes or pants manufactured. These will be piece wages.

Money Wages and Real Wages

            Money wages or nominal wages relate to the amount of money income received by workers for their services in production. Real wages include the various facilities, benefits and comforts which workers receive in terms of goods and services for their work. These are in addition to the money wages of workers.

Real Wages depend upon the following factors.

  1. Price Level

    The purchasing power of money depends upon the price level. When the price level rises, the purchasing power of money gets reduced thus adversely affecting the real wages of workers. Every increase in the price level reduces the purchasing power of money. This leads to a fall in the real wages of workers.

  1. Money Wages

    The size of the pay packet received by the worker is an important determinant of his real wages. The greater the money wages, the greater will be the real wages, other things remaining the same.

  1.  Regularity of Work

    A permanent job even though it carries a smaller money income, is considered to be better than a temporary job which may yield high reward in terms of money.

  1. Nature of Work

    The nature of work also plays an important role in determining the level of real wages. Some jobs are pleasant, while others are not. Likewise, some occupations are enjoyable while others are disagreeable. All these considerations have to be given weightage in determining real wages.

  1. Future Prospects

    An occupation carrying the promise of better prospects of promotion in the future is considered to be better than the one which does not do so, even though the money wages offered by the latter may be high.

  1. Extra Benefits

    In some occupations, employees receive in addition to their pay, some extra benefits. For example, the manager of a firm gets in addition to his pay, a well furnished bungalow, free medical help etc. Such benefits increase the real wage of a worker.

  1. Trade Expenses

    This refers to the expenses one has to incur in the course of one’s occupation. These expenses are high income occupations while in others they may be moderate. These expenses should be deducted from the money income in order to arrive at the real wage.

  1. Social Prestige

    The real wages of employees engaged in prestigious occupations are high as compared to real wages of employees working in ordinary occupations.

  1. Form of Payment

    Real Wages are influenced by the form of payment. Generally, workers are paid money wages. But in certain occupations in addition to wages, workers receive subsidised ration or free lunch and living quarters. All these facilities increase the real wages of workers.

  1.  Conditions of Work

    Conditions of work also affect real wages. In some cases, it is found that conditions of work are not congenial and they adversely affect their health. In such cases, the real wages of workers are low.

Now Let us see an illustration which explains the amount of wage to be paid by the industry.

Illustration 1

Presume an industry is a monopolist in the market for labour it hires. The industry can hire the quantity of labour at W = 20 + 4 L and the MRP of labour = 200 – L.

  1. Ascertain the number of workers the industry will hire and

  2. Determine the wage rate that will be paid.

Solution

To maximise profits the firm will hire labour until MFCL = MRPL.

Therefore we have to find out marginal factor cost of labour (MFCL) from the given wage function. Thus,

            W = 20 + 4L

To ascertain the total cost of labour (TFCL), we have to multiply by the quantity of labour (L), thus we obtain

            TFCL = W x L, which will give the following

            20 L + 4L^2

Now to compute marginal factor cost of labour using the formula, we obtain,

MFCL = d (TFCL)
                   dL

this will give 20 + 8L

For profit maximisation:

MFCL = MRPL

20 + 8L = 200 – L

9L = 180

L = 20

Hence the wage rate of $ 20 will be paid.

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