concept of wages and types of wages

WAGES, Wages may be defined as the : made to labour for the services they in production. In other words, wages the rewards paid for the services of labour. During the discussion on factors of ion, it was stated that the reward for is wages. Wages are the price of labour.

Types of wages

  1. Nominal wages: Nominal wages refer Ho the total amount of money paid to a labourer at a particular period of time. Nominal wage, also called money wage, is the total amount of money paid to labour at a stated or stipulated period of time. It is measured in monetary terms.
  2. Real wages: Real wages refer to the total amount or quantity of goods and services the labour can use his money to buy. Real wage refers to the purchasing power of labour.

Wage Rate

Definition: Wage rate may be defined as the at which labour is paid for the services it in production.

Types of wage rate

  • Time rate system: The time rate system type in which wages paid to labour are on the number of hours worked. Time rated wages apply to workers whose wages are paid on hourly, daily, fortnightly or monthly basis.

Situation where time rate system can be applied

  • Where the quantity of work done is not easy to measure.
  •  Where the quality of work done is more important that the quantity.
  •  Where employees will require the supervision of the employer to get the full value of their wages.
  • Where certain jobs may not be done for a longer period of time due to their health implications.
  •  Where incentives to workers are not necessary.
  • Piece rate system: The piece rate system is concerned with the wages paid to labour based on the

work done. In this system, payment to workers is related to the work done or output. The

output of the worker is measured and he is accordingly rewarded.

Situations where piece rate system is applied

  • Where supervision may not be necessary.
  • Where output can easily be measured.
  •  Where large scale production is expected.
  •  Where incentives to workers is encouraged.


The factors responsible for the differences in wages are as follows:

  • Differences in cost of training: Professions that are costly or expensive to execute in the course of training tend to attract higher wages than those with cheaper cost of training.
  • Differences in period of training: Some professions attract longer periods of training, e.g. the medical profession, and therefore attract higher wages.
  • Skill needed at work: Some professions that require special skill during training tend to have higher wages than those that do not require any skill.
  • Activities of trade unions: Some trade unions determine what their members have to be paid, e.g. chartered accountants, and this tends to make them earn higher wages.
  • Forces of supply and demand: When the demand for a particular labour is higher than the supply, such labour tends to receive higher wages
  • Level of productivity: It is assumed that in an ideal situation, the more a worker becomes productive, the higher his wages will be and vice versa.
  • Differences in hours of work: It is also assumed that in an ideal situation, the longer the number of hours worked, the higher the wages, especially when the piece rate system is used.
  •  Level of risk associated with a job: Certain jobs, e.g. piloting, petroleum engineering, etc involve greater risks when in operation and therefore are associated with higher wages.
  • Entry qualification: Certain professions require tough qualification and lengthy years of training, e.g. medical doctor and lawyer, which tend to attract higher wages while those with little or no entry qualifications tend to receive wages.
  • Prestige associated with jobs: jobs attract high prestige from the s e.g. medicine, law and engineering; they therefore attract higher wages i those with low prestige receive wages.


Wages can be determined through the foil

  •  The forces of demand and supply in a market economy.
  • Government activities and policies
  • The activities of trade unions.
  • The forces of demand and supply a market economy: The wages of labor market economy can be determined through forces of demand and supply.

In a competitive labour market, there are many employers and unorganized employees resulting in a situation where a single employer or employee cannot influence the wage rate either by refusing employed or to employ. Wage re competitive labour market can be determined in the following manner.

  • When the supply of labour exceeds demand, wage rate will fall.
  • When the demand for labour exceeds supply, wage rate will rise.
  • When the demand for labour equals supply, wage rate will be favour both the employer and the employee. The determination of wages by de and supply can be demonstrated by the graph.

(b)       Government activities and policies

Government institutions and wage commissions set up by the government help in determining wages, especially in the public services. In fixing wages, the government agency or wage commission takes the following factors into consideration.

  • Cost of living: The higher the cost of living, the higher wages are likely to be. If workers spend much to get the essentials of life, then there is need to pay workers higher wages to enable them to meet up.
  • Level of productivity: The greater the level of production in the country, the higher the wage rate.
  • Type of occupation: The wage structure varies from one occupation to another. The wage structure for each category of labour, the risk involved, etc. Therefore, various salary levels are fixed for different categories of labour in the civil service.
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