Home Economics Wages: Definition, Types, Wage Determination

Wages: Definition, Types, Wage Determination


Wages are rewards paid for the services of labour. That is to say, the amount paid to labour for the services it rendered during production.


Types of Wages

1. Nominal Wages

Nominal wages, also known as money wages are the total quantity of rewards paid to labour which are measured in monetary terms. That is to say, the total amount of money paid to labour in a given period of time.

2. Real Wages

Real Wages are the total amounts of goods and services which the rewards paid to labour can purchase. That means the purchasing power or what the money paid for labour can buy.

Reasons For The Differences in Reward For Labour/Why Workers Earn Different Salaries

1. Period of Training

Some workers spend more years to acquire their training than others and therefore, they are rewarded more than their counterparts. For instance, Medical Doctors and Engineers spend more years during their training than Typists and Clerks.

2. The Amount Spent In The Course of Training

Those who spend more amount in the course of their training are rewarded more in line with what they spent during training.

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3. The Skill Requirement in a Work

While it requires special skill acquired through training, to be a Doctor or an Engineer, it does not need any special skill for one to be a messenger or a cleaner. Hence, Doctors and Engineers are paid far more than Messengers and Cleaners.

4. The Rate of Demand and Supply

The rate at which a particular labour is demanded relative to its supply affects the reward it will attract. For instance, the demand for unskilled labour is far lower than its supply, and therefore, its reward is low. The demand for Medical Doctors is still higher than their supply, hence, the higher pay to Medical Doctors.

5. The Role of Trade Unions

Trade unions which act as umbrella that brings some workers together play significant role in bringing about differences in rewards of labour. In some cases, they use the instrument of industrial action to press for higher rewards for their members.

6. The Level of Productivity

The higher the level of productivity of workers, ceteris paribus, the more the rewards the workers will get.

7. The Societal Value of a Particular Job

The extent the society values a particular job determines what the reward for such labour will be. For instance, the society places high premium on the work of clergymen than others, even though they do not produce tangible commodities, hence the work of clergymen attracts higher pay.

8. The Relationship Between Employee and Employer

This at times has nothing to do with the level of productivity and the qualification of the worker.

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9. The Risks Involved in a Job

Those jobs that involve more risks attract higher pay. The workers that risk their lives like Pilots are paid higher than their counterparts in less dangerous jobs.

10. Gender Consideration

In some society where there is gender discrimination, men are rewarded more than their women counterparts. These male chauvinists have the erroneous belief that men work harder than women and therefore, should be paid higher.

Wage Determinations

Wages can be determined under the following three approaches.

1. The Forces of Demand and Supply.

2. Activities of Trade Unions.

3. Government policies.


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