Concepts of Wage 4.

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Definition of Wage
Wage refers to payment for labor service of monetary remuneration, payable to a worker, computed on hourly, daily, weekly, or piece work basis. A fixed weekly or monthly wage is usually called a salary. The wage is the portion of the national product that represents the aggregate pay for all contributing labor or service as distinguished from the portion retained by management or reinvested in capital goods.

Wages, earnings, total compensation, and income

There are a few basic definitions that will be used throughout the discussion of labour economics. It is very important that you use these terms precisely and not confuse them: wage = payment per unit of time earnings = wage x hours (labor payment over an interval of time, typically a week or a month) total compensation = earnings + fringe benefits (fringe) benefits1 = payments-in-kind + deferred compensation (where: payments-in-kind include any payments in the form of goods and services such as the use of a company provided car, or employer-provided meals, uniforms, health insurance, or similar benefits; and deferred compensation involves items such as pension plans and other programs that provide payments at some point in the future.) income = total compensation + unearned income (in practice, when data on income is reported, income is generally measured as: income = earnings + unearned income since researchers generally do not have accurate measures of the value of fringe benefits)

Different Concepts of wage

Subsistence Wage A subsistence wages is a wage that only meets bare physical needs of a worker and his family. So it is the lowest wage upon which a worker and his family can only survive. Minimum wage The minimum wage is a controversial concept. Advocates claim that some minimum wage is required in society because of the imbalance of power between the employer and employee. This is particularly true in the least developed and developing economy. By having a minimum wage, the country is reducing the dependence of some people on the "safety net" of society and thus lowering the cost of government. Opponents of the minimum wage claim that it creates unemployment in the lowest level of workers and puts a hard burden on small businesses.

Now-a-days, the term fringe benefit is not in regular use, which traditionally indicates to separation/marginal benefit. In some extent, its textual meaning and practical applications create confusion about its coverage and includable items. So, as a more general term, it is better to use benefit or allowance instead of fringe benefit. For Class Room Use Only/1

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Living wage A living wage is a wage that allows an employee to maintain a decent standard of living. So this term used to describe the minimum hourly wage necessary for a person to achieve some specific standard of living. A living wage is one at which employees can support their families above the recognized poverty line. In the context of developed countries such as the United Kingdom or Switzerland, this standard generally means that a person working forty hours a week, with no additional income, should be able to afford a specified quality or quantity of housing, food, utilities, transport, health care, and recreation. This concept differs from the minimum wage in that the latter is set by law and may fail to meet the requirements of a living wage. Some analysts claim that subscribing, by any company, to a living wage results in the following benefits: reduces turnover and absenteeism, thereby lowering recruitment and training costs increases productivity increases morale and commitment to the company improves the community

Fair Wage A general definition of fair wages refer to- Company practices that lead to sustainable wage developments. And an extended definition of fair wages refer to- Wage levels and wagefixing mechanisms that provide a living wage floor for workers, while complying with national wage regulations (such as the minimum wage, payment of wages, overtime payments, provision of paid holidays and social insurance payments), ensure proper wage adjustments and lead to balanced wage developments in the company (with regard to wage disparity, skills, individual and collective performance and adequate internal communication and collective bargaining on wage issues). A fair wages is a wage adjusted according to the local market and industry. A fair wage lies between the minimum wage and the living wage which is the goal. Wages must be paid on an industry wise and region basis having due regard to the financial capacity of the unit.

Nominal and real wages

If we are to measure changes in wages (or income) over time, it is important that some adjustment be made for the effect of inflation. Nominal wages are not adjusted for inflation and are said to be expressed in terms of "current dollars" (since they are measured in terms of the value of the dollar at that particular time). Real wages are wages that have been adjusted to take into account the effect of inflation. Real wages are expressed in terms of dollars from a given base year and are said to be expressed in "constant dollars." Some form of price index is used to convert nominal wages into real wages. A price index is constructed using the following formula:

In practice, this price index is often expressed as a percentage by multiplying the formula above by 100. The most commonly used price index is the Consumer Price Index (CPI). The basket of goods used for the CPI is determined by the mix of goods consumed by a typical family of 4 in selected Standard Metropolitan Statistical Areas (SMSAs). The specific mix of goods is determined from the Consumer Expenditure Survey.
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Suppose the cost of the basket of goods used to compute the CPI is twice as high today as it was in the base year. An inspection of the equation above indicates that the CPI will be 2 (or 200 expressed as a percentage). (In the base year, the price index will always be equal to 1, or 100 as a percentage.) Suppose that an individual's current wage is tk. 12 an hour when prices are, on average, twice as high today as in the base year. A bit of reflection should convince you that the real wage, as measured in terms of the base year's dollars equals tk. 6. In general, the real price of an item is measured as:

(Note: that the price index is not measured as a percentage in this calculation.) In general, economists assume that individual workers and firms respond to changes in real wages and not nominal wages. Workers are concerned with the purchasing power of their wage over time, not just the number of dollars they receive.

Determinants of real wages

The following factors have to be taken in to consideration contained by determination of real wages. 1. Purchasing power of Money: The purchasing power of money fluctuates from time to time. The purchasing power of money has an inverse functional relationship with price of the commodities. If prices are low and nominal wages are large, then real wages are also high due to increase contained by purchasing power of the money. 2. Fringe Benefits: The fringe benefits are also components of real wages. For example facility of accommodation, telephone, transport, servant, etc. These benefits increase the genuine wages. 3. Extra Earning: The opportunity of extra earning increase the real wage of a person. For example teacher has higher real wage then other official of the some great working in an office due to the opportunities of extra earning like writing books, articles of news papers etc. 4. Working Hours: The number of working hours should be taken into explanation in the determination of real wages. 5. Tenure of Services: There are two types of employment regarding the tenure of services i.e. permanent and temporary. A person employed permanently has higher real wage then the one who is employed temporarily or seasonal. 6. Social status: The social status of a teacher and of a civil officer in same grade is quite different in Bangladesh. So that, the real wage of the later is higher then that of the former.

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