Wages may be defined as the payment made to labor for its assistance in production. It can be regarded as a price; just like any other price, wages are determined in the labor market.
Types of Wages
- Real Wages: This means the purchasing power of labor. It is the amount of goods and services labor can use his money to buy
- Nominal Wage: This is defined as the total amount of money a laborer is paid at a particular period
Types of Wage Rate
- Piece Rate System: This is a method of rewarding labor and can be described as payment by result as this method does not involves the stress of measuring individual labor output; the cardinal objective of piece rate system is an increased production.
Conditions under which Piece Rate System can be used
- Large Production: Piece rate system is useful where large production is required
- When Close Supervision is Difficult: This system does not require unnecessary supervision
- Where there is less supervision: Piece rate system can be used when workers can conveniently work on their own
- Repetition: Piece rate system can be used where the product is of standard types made by repetition
- Time Rates: Time rate is the method of rewarding labor where employees are being paid their wages based on the number of hours worked. This method makes it possible for the laborer to be paid for his production activities irrespective of their output.
Conditions Under, which Time Rate System can be used
- Where the employers consider the quality of the job very essential, time rate system can be used
- The types of materials such as delicate ones, makes the use of time rate system imperative
- The time rate system is used where the process of production is regularly interrupted by forces beyond the control of the workers
- Where supervision of workers is possible, time rate system can easily be applied.
- If there will be health hazard because of working for long hours, time rate system can be adopted
- Where the employers have difficulties in measuring the output of the workers e.g. police, lawyers, accountants, teachers, nurses, doctors etc, for such services time rate system can easily be used.
Factors Determining Variation of Wages
- Job Differences: Some people are into some professions that are highly demanding. They may be required to spend extra hours, whereas some jobs are not that demanding, this makes the people in the first group to be paid higher
- Natural Talent: Some jobs require natural talents or creativity to execute, example, music, artists. People in these professions are meant to be paid higher
- Biological and Acquired Differences in Labor: It is natural that some human beings are born with different abilities in different environments, which provide the opportunities to develop their inept qualities. This endowment now makes it possible for a particular individual to be paid higher than the other does
- Scarcity of Labor Supply: Artificial barriers and restrictions to free entry into the labor market may exist as this may tend to reduce supply of labor, thus those that are employed have to be paid higher
- Differences in the Hours of Work: Some Workers may put in more hours in execution of their jobs, which may lead to different wage rates
- Government Policies: There may be minimum requirements or skills stipulated by the Government for a particular job, such jobs are difficult to secure, thus a few people that are able to sail through are paid higher than the rest
- Differences in the Cost of Training: Some professions require more time for training than others do. For example, for an individual to be trained as a medical doctor takes more time than to be trained as a clerk. Based on this, the people that have spent more time for training have to be paid higher.
- Job Demand: Some jobs demand a very high sense of responsibility, people in such occupations are paid higher
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