On the basis of form,
wages are of two kinds, nominal wage and real wage.
wage' is meant the total amount of money earned by a
person during a certain period".
For instance, you employ a
servant and pay him $2600 per month for the services he
renders to you. The amount which is paid in terms of money only
is named as nominal wages.
(2) Real Wages:
wages refer to the total amount of satisfaction which a worker
receives in the form of necessities, comforts and luxuries in
return for the services".
generally include money
wages and other facilities, like free clothing, free housing,
free accommodation, free electricity, etc. If we are to judge
the standard of living of the masses, it can be estimated not
from the nominal wages of the workers but from then real wages.
In the words of Adam Smith, the
labor is rich or poor, is well
or ill-rewarded, in proportion to the real, not the nominal
wages of the labor. If we are to estimate the real wages of a
labor, the following factors are to be taken into
following factors that influence the real wages:
(i) Purchasing Power of
Money. The purchasing power of money does not remain the same.
It continues fluctuating from time to time. When the prices of
the commodities go up, the purchasing power of money falls and
when the prices fall, the purchasing power of money rises. The
real wages of a labor depend upon the purchasing power of
money. If the nominal wages are quite high in a country, it
cannot be said that real wages would also be high. Real wages
depend upon the purchasing power of money. If nominal wages are
high and prices are low, then we can say that the real wages of
the labor are high but in case the cost of living is high, then,
the real wages will be low. Thus, we conclude that, other things
remaining the same, the higher the cost of living, the lower the
real wages and vice versa.
(ii) Opportunity of
Extra Earning. If a person his an opportunity of earning extra
income in a certain occupation, then his real wages will be
higher than the one who does not have. For instance, a professor
can increase his income by writing books, contributing articles
of journals, newspaper, etc., but a superintendent working in an
office does not have opportunity for supplementing his income.
So his real wages will be low as compared to professor's income
even if both are getting the same salary.
(iii) Nature of Work.
In computing real wages, we have to take into consideration the
nature of work also. If the work is pleasant and agreeable, then
real wages will be high, even if the normal wages are low. For
instance, James is working as a pilot in the US Air Force
and is getting $50,000 per month. Another man, Lara, is a
magistrate and is receiving $20,000 monthly. There is no
doubt that James's nominal wage is higher but his duty is of
such a nature that his life is always in danger. On the other
hand, the duty of the magistrate is pleasant and has a social
status. So, we can say that the real wage of the magistrate is
high because his work is pleasant while that of the pilot is low
because his work is risky.
(iv) Future Prospects.
The prospects of success in the future also play a dominant role
in determining the real wage of a person. If in a certain
occupation, the chance of future prospects are dark, then the
real wage of that man who is working in such occupation is
lower than the one who is getting low wages in a certain job but
his chances of getting promotion in the future are certain and
(v) Hours of Work.
When we are to measure the real wages of two different persons
earning the same amount, the number of working hours should
also be taken into account. For example, if a worker receives $5,000 monthly by working four hours a day and the other 8 hours
a day. The real wage of the former will be higher than the
(vi) Tenure of
Services. Employments are of two types, permanent and seasonal.
If a person is engaged in a work which is regular and permanent,
then other things remaining the same, his real wages will be
higher than the one who is working in a seasonal occupation.
(vii) Form of Payment.
While determining the real wages of a labor, the form of
payment should also be taken into consideration. If a labor is
receiving $6,000 monthly and there is no extra payment in
kind, such as clothing, food, shelter, etc., then his real wages
will be lower than the one who earns $ 5,000 monthly and also
receives additional facilities in kind.
(viii) Expenses of
Trainings. Expenses of training ate also one of the very
important element in determining the real wages of a labor. For
instance, the nominal wages of two laborers are the same, but
their period and the cost of training differ. One labor has
spent 16 years of his life in getting education and has spent $10 lakh. The cost and the period of training of the other
is $40,000 and two years only. It is quite evident that the
real wages of the later are higher than that of the former.
(ix) Social Status.
Real wages also depend upon social status. The money wages of a
magistrate and a professor may be equal but the farmer's
position is held in great social esteem in Pakistan. So. we can
say [hat real wages of the magistrate are higher than the
professor's in Pakistan.