10 Factors that influences real wages in cost accounting


Real wages are influenced by the following factors:

1. Purchasing Power of money:

Money is demanded not for itself but for its purchasing power. Real wage depends on the purchasing power of money. The purchasing power of money is inversely related to the price level. If prices go up, the purchasing power of money falls and vice versa. Hence, real wages ultimately depend on the prices of goods and services.


In symbols, WR =WM/P. Here, WR = Real wage, WM = Money wage, P=Price level.

2. Extra Earnings:

Real wages will be high if in a job there is a possibility of earning extra income. For example, a schoolteacher may supplement his income by private tuitions. In this case, the money wage may be low; still the real wage is high.

3. Additional Receipts in Kind:


The money income of a person may be increased by free quarters, free uniform, and special gifts on festive occasions etc. A person improves his living standard from such sources. A pension after retirement or a free bungalow adds to an officer’s real income.

4. Working Hours:

Frequent rest intervals add to one’s real wages and comforts. In some occupations, workers have to put in extra work without extra payment. Such unpaid overtime work reduces real wage.

5. Regularity of Employment:


If a person is frequently out of work, even high money wage ultimately means a low real wage. Continuous employment on a lower wage is preferred to work which is more playing but uncertain and temporary. That is why an ordinary doctor may take to service as against independent practice.

6. Working conditions:

In case the working conditions are congenial and refreshing, real wages will increase. Working conditions include provisions of leave, rest, sanitary condition of the factory and behaviour of the employer etc.

7. Nature of the job:


Certain jobs are very risky. In certain jobs, the work may be disagreeable or dangerous. Other jobs reduce the longevity of the worker’s life. The life of an air pilot is a case in point. An engine driver’s work is strenuous and hazardous. In certain jobs the environment may be unhygienic and the work dull, dry, drab and monotonous. In these cases, workers receive high money wages but their real wages may be low.

8. Future Prospects:

Jobs, which carry prospects for future promotion, will have high real wages. For example, in the Army there are prospects of a rise to the higher ranks. In bank service, also prospects of quick promotion are there. But if a teacher will join as a teacher and retire as a teacher his real wage may be adversely affected.

9. Occupational Expenses:


Workers in some occupations like teaching, medicine, law etc. have to incur additional expenses on books, journals, good furniture, equipments etc. to keep themselves well informed about the new knowledge and the latest facts. Similarly, cost of training for some occupations is very high. Such expenses have to be deducted from money wages while estimating real wages.

10. Relative Social Prestige:

There are certain jobs, which carry higher social dignity. Some social distinction is attached to such jobs. In these jobs, real wages will be high.

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