The amount of money paid to employees per unit of time for mental or physical services provided by them is called wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. Wage is the factor income of labor. The persons who obtain wage are called laborers. The laborer is paid wage because of following reasons
- In doing works, there is physical or mental exertion. Against this exertion the workers must be compensated.
- To do work the workers must have physical ad mental strength. For strength they have spend money on food, education, skills and so on.
- The workers need refreshment and rest to regain the working strength for which they should be compensated.
- The workers have sacrificed leisure to do work. To compensate against it too, they must be paid wage.
There are two concepts of wage
- Money wage:
The amount of money paid to employees per unit of time for mental or physical services provided by them is called money wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. it depends upon nature of work, time required, the qualities necessary to perform the work and so on.
- Real wage:
The physical quantity goods that can be purchased with the expenditure of money wage us called real wage. It is given by the ration of money wage and price level.
Real wage is directly related to money wage but inversely related to price level. If W is increased being P constant, real wage increases and vice versa. If P rises remaining W constant real wage decreases and vice versa
It can be explained with the help of table and figure as following
|Money wage (W)||Price level (P)||Real wage (1/P)|
|Rs 20000||Rs 100||200 units|
|Rs 20000||Rs 200||100 units|
|Rs 20000||Rs 300||66.67 units|
In the above table, the real wage is decreased from 200 units to 100 and 66.67 units when money wage is constant at Rs 20000 and price level is increased from Rs 100 to Rs 200 and Rs 300 respectively. It shows the inverse relationship between real wage and price level. If we represent the real wage with respect to price level, we obtain a monotonically downwardly sloped convex curve as shown below:
In the above figure, the convex curve represents relationship between real wage and price level. It shows if price level raises real wage decreases and so on.