Notes on Real wage, Derived demand for labors and Marginal Revenue product of labour


(a) Real wage:-

Wage measured in terms of goods and services is called real wage. Real wage is the buying capacity of money wage. It is the amount of necessaries comforts and luxuries which the worker obtains. In return for remuneration. A worker enjoys his monthly money wage along with certain other benefits and services like free medicine, free education, free housing and free fooding etc. All these add to his money incomes.

Thus a worker real wage constitutes all the good and services he enjoys in his occupation. Real wage is affected by the price level and purchasing power of money. It is the true indicator of a workers living standard and prosperity. Thus the laborer is rich or poor, is well or ill rewarded in proportion to the real, not the nominal wages, of his labour.


(b)Derived demand for labors:

Demand for labour is derived demand. Derived demand for labour means demand for labour that arises from the demand for output of the good which labour helps to produce. Unlike other goods labour does not directly satisfy people’s want. Thus the demand for labour is derived from the demand for the product they produce. The greater the demand for goods which a particular type of labour produces, the greater the demand for that type of labour.

As demand for goods depends upon their utility, the demand for labour depends on marginal revenue productivity of labour. Thus the marginal revenue productivity curve of labour is the demand curve for the labour. The entrepreneurs demand for labour is governed by the marginal productivity of factor.

(c) Marginal Revenue product of labour:


MRP is the addition to the total revenue of a firm by employing one more unit of labour. Marginal physical product of labour multiplied by marginal revenue is known as marginal Revenue Product. Thus MRP = MPP x MR. Under perfect competition in the product market price of output of a firm is equal to the marginal revenue. Under perfect competition in the product market, MRP of labour is equal value of marginal product labour.

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