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Economics 12 Notes for Economics Notes

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Wage

Wage

The amount of money paid to employees per unit of time for mental or physical services provided by them is called wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. Wage is the factor income of labor. The persons who obtain wage are called laborers. The laborer is paid wage because of following reasons

  1. In doing works, there is physical or mental exertion. Against this exertion the workers must be compensated.
  2. To do work the workers must have physical ad mental strength. For strength, they have spent money on food, education, skills and so on.
  3. The workers need refreshment and rest to regain the working strength for which they should be compensated.
  4. The workers have sacrificed leisure to do work. To compensate against it too, they must be paid wage.

There are two concepts of wage which are:
Money wage:
The amount of money paid to employees per unit of time for mental or physical services provided by them is called money wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. it depends upon nature of work, time required, the qualities necessary to perform the work and so on.
Real wage:
The physical quantity goods that can be purchased with the expenditure of money wage is called real wage. It is given by the ration of money wage and price level.

real wage

Real wage is directly related to money wage but inversely related to price level. If W is increased being P constant, real wage increases and vice versa. If P rises remaining W constant real wage decreases and vice versa

real wage

It can be explained with the help of table and figure as following

Money wage (W) Price level (P) Real wage (1/P)
Rs 20000 Rs 100 200 units
Rs 20000 Rs 200 100 units
Rs 20000 Rs 300 66.67 units

In the above table, the real wage is decreased from 200 units to 100 and 66.67 units when money wage is constant at Rs 20000 and price level is increased from Rs 100 to Rs 200 and Rs 300 respectively. It shows the inverse relationship between real wage and price level. If we represent the real wage with respect to price level, we obtain a monotonically downward sloped convex curve as shown below:

real wage vs

In the above figure, the convex curve represents relationship between real wage and price level. It shows if price level raises real wage decreases and so on.

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