What do you mean by Wages ?

Labour is an essential factor of production. It is a sensitive and active factor. It activates other factors of production. The remuneration paid to labourers for their services is termed as wages. Wages are contractual payments due to the contract made between the employer and the labourer. Thus, wages are predetermined.

According to Prof. Benham, “A wage may be defined as a sum of money, paid under contract by an employer to a worker for services rendered.” Thus, remuneration or reward of a labourer engaged in production for the physical or mental work is known as wage in Economics.

Wage is paid as a price to the labour of the labourer. We know that labour is a primary and active factor of production. It is perishable, inseparable from the labourer, less mobile and heterogeneous. The labourer sells his labour but not himself. Labour differs in efficiency. Labour has weak bargaining power. Labour constitutes the human element in production. It is not only a means of production, but also the beneficiary of production. Labour is both the producer as well as the consumer of wealth.

In the words of Cairncross, labour is more than mere physical exertion and strenuous work. Labourers exercise intelligence and conscience. In modern times, brain has become more important than brawn. Dr. Marshall defines labour as “any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work.” These are the features of labour as a factor of production.

Determination of Wage:

A number of theories have been propounded from time to time to explain the determination of wages. The Marginal Productivity Theory as a theory of wages has been discussed before. We are concerned here with another theory of wage. The theory is known as the Demand and Supply Theory of wage.

The modern theory of wage explains the determination of wages on the basis of demand for and supply of labour. The theory is based on the assumption of perfect competition both in the factor market and also in the product market. Here by the factor market we mean market for labour. Product market refers to the market where the product produced by labour is sold. In such a situation, we are confronted with the demand curve of labour and supply curve of labour.

Demand for labour:

Demand for labour is an indirect or derived demand. It is derived from the demand for other goods and services. Demand for labour is affected by the technique of production and prices of other factors of production in the market etc. But marginal productivity of labour has the greatest impact on the demand for labour. The employer will go on employing labour upto the point of equality between the marginal productivity of labour and wage Rae. This is done to maximise profits. We also know that as the units of labour increases, its marginal productivity falls. Hence, the demand curves for labour slops downwards from left to right. It also indicates that more labourers are demanded at lower wages and less at higher wages. Under perfect competition, industry’s demand curve for labour is the summation of demand curves of all firms. This curve is downward sloping.

Supply of Labour:

Supply of labour depends on factors like size and age structure of population, the ratio of working population in the total population, nature of the work, environment, tradition, work leisure ratio etc. The supply of labour is directly related to the wage rate. More labourers are supplied at a higher wage rate and less at a lower wage rate. So the supply curve for labour is upward sloping for a given industry.