In economics, the price paid to labour for its contribution to the process of production is called wages.
Labour is an important factor of production. If there is no labour to work, all other factors, be it land or capital, will remain idle.
Thus, Karl Marx termed labour as the “creator of all value”.
However, labour alone cannot produce as most of the production is the result of joint efforts of different factors of production. Therefore, the share of the produce paid to labour for its production activity is called wage.
“A wage may be defined as the sum of money paid under contract by an employer to worker for services rendered.” -Benham
“Wages is the payment to labour for its assistance to production.” -A.H. Hansen
‘Wage rate is the price paid for the use of labour.” -Mc Connell
“A wage is price, it is the price paid by the employer to the worker on account of labour performed.” -J.R. Turner
Types of Wages:
In real practice, wages are of many types as follows:
1. Piece Wages:
Piece wages are the wages paid according to the work done by the worker. To calculate the piece wages, the number of units produced by the worker are taken into consideration.
2. Time Wages:
If the labourer is paid for his services according to time, it is called as time wages. For example, if the labour is paid Rs. 35 per day, it will be termed as time wage.
3. Cash Wages:
Cash wages refer to the wages paid to the labour in terms of money. The salary paid to a worker is an instance of cash wages.
4. Wages in Kind:
When the labourer is paid in terms of goods rather than cash, is called the wage in kind. These types of wages are popular in rural areas.
5. Contract Wages:
Under this type, the wages are fixed in the beginning for complete work. For instance, if a contractor is told that he will be paid Rs. 25,000 for the construction of building, it will be termed as contract wages.
Concepts of Wages:
The following are the two main concepts of wages:
A. Nominal Wage:
B. Real Wage:
A. Money Wages or Nominal Wages:
The total amount of money received by the labourer in the process of production is called the money wages or nominal wages.
B. Real Wages:
Real wages mean translation of money wages into real terms or in terms of commodities and services that money can buy. They refer to the advantages of worker’s occupation, i.e. the amount of the necessaries, comforts and luxuries of life which the worker can command in return for his services.
An example will make the things clear. Suppose ‘A’ receives Rs. 500 p.m. as money wages during the year. Suppose also that midway through the year the prices of commodities and services, that the worker buys, go up, on the average, by 50%.
It means that though the money wages remain the same, the real wages (consumption basket in terms of commodities and services) are reduced by 50%. Real wages also include extra supplementary benefits along with the money wages.
Distinction between Real and Money Wages:
Adam Smith has distinguished the money wages and real wages on the following basis:
1. Relation with Price:
Keeping all other things constant, there exists inverse relation between real wages and price i.e. with the increase in price level real wages tend to decline and vice-versa.
2. Money and Real Wages:
Ceterus paribus, an increase in money wages will lead to an increase in real wages. It is due to the reason that with the increase in money wages, a labourer can purchase more goods and services than before.
3. Basic Difference:
According to Adam Smith, money wages are paid in terms of the quantity of money whereas real w ages are paid in terms of necessaries of life. Therefore money w ages are expressed in terms of money and that of real wages in terms of goods and services.