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What is wages?

Wages - Wages can be defined as under

    1. It is reward received by labourer for his labor (work)

    2. It is type of reward for human exertion.

    3. Sum of money paid by under contract by an em5loyer to a worker for services he rendered.

For wages, different names are given like salary, fees commission allowance etc. but the meaning is same i.e. reward for exertion or work. The wages are paid in different way as cash end kind wages; time wages (i.e. per day, per month) and task wages (contracts) Wages are two types.

1) Nominal Wages:
An amount paid to a worker for his work
2) Real wages:
It refers to satisfaction that a labourer gets from pending his money wages or nominal wages. Therefore, increase in nominal wages may or may not be increased in real wages. Because real wages are influenced by different factors like.

1) Purchasing power of money
2) Addition receipts in kind received by a person.
3) Supplementary income and
4) Regularity of employment.

Marginal productivity theory of wages: The marginal productivity theory states that under conditions of perfect competition, every worker of same skill and efficiency will receive a wage equal to the value of marginal product of that type of labour. The marginal product of any industry is the amount of which the output would be increased, if more man was employed while the quantities of other factors of production employed in the industry remained constant. In short, it is the output of single worker unaccompanied by any change in other factors of production. The value of marginal product of labour is the price at which the marginal product can be sold in the market. The condition of perfect competition implies that the marginal cost of labour is always equal to the wage rate, irrespective of number of workers the employer may engage. Every includes try being ultimately subject to law of diminishing returns, this marginal returns must start declining. Wages remaining the same, the employer stops employing more workers at that point where the value of product of a worker is equal to wage rate.


1) This theory has little applicability to reality. The labour is not perfectly mobile. The workers of same skill and efficiency may not receive the same wage at different places.
2) The actual world is dynamic; all factors assumed to be constant are in fact constantly changing.
3) The productivity of workers is also dependent upon other factors like quality of capital and efficient management.
4) Productivity is also dependent o wages.

Current Category » Introduction to Agriculture Economics