wages

wages payment received by an employee in exchange for labor. It may be in goods or services but is customarily in money. The term in a broad sense refers to what is received in any way for labor, but wages usually refer to payments to workers who are paid by the hour, in contrast to a salary, which implies a more fixed and permanent form of income (e.g., payment by the month rather than by the hour). In economic theory, wages reckoned in money are called nominal wages, as distinguished from real wages, i.e., the amount of goods and services that the money will buy. Real wages depend on the price level, as well as on the nominal or money wages.

In the United States, wages increased fivefold between 1860 and 1960. Adjusted for inflation and expressed in 1982 dollars, the typical weekly wage of a U.S. worker increased from $262 in 1960 to $298 in 1970, but increased foreign competition and slower U.S. economic growth forced weekly wages down to $274 in 1980 and $255 in 1991. In the 1990s, U.S. wages grew very slowly, to $270 in 1998, despite record economic growth. In the United States and elsewhere, a "gender gap" often exists, in which women are paid less than men for comparable positions.

See also minimum wage .

Economic Theories about Wages

Many theories have been advanced to explain the nature of wages. The first of them was the subsistence theory of wages, also called the "iron law of wages," of which David Ricardo was one of the main exponents. The theory maintains that wages cluster around the bare subsistence level of workers. A wage rate much above the subsistence level causes an increase in the number of workers; competition will then lead to a depression of wages back toward the cost of subsistence. Wages that are below subsistence reduce the size of the working population; in that case competition will raise wages, but only up to the subsistence level again.

In the surplus-value theory as propounded by Karl Marx , the value produced by the worker in excess of what is paid in wages is called surplus value. The surplus value, exacted from the worker, constitutes the capitalist's profit. The wage-fund theory is that wages are advanced out of a fixed fund of capital, from which an excess withdrawal, either through legislation or through union pressure, will ultimately reduce the amount available for other workers. Any increase in wages would also have to be taken out of profits, and their reduction would cause a decline in savings, which provide the capital from which the wage fund is derived.

The marginal-productivity theory maintains that employers will only pay a wage that is, at most, equal to the amount of extra value added to the total product by one additional worker. The bargaining theory modifies the marginal-productivity theory by taking into consideration other factors (e.g., laws and social and political changes) that might affect the determination of wage levels and by acknowledging that certain basic assumptions (equal bargaining power of employer and employee, free competition between the two, and mobility of labor) that characterize the marginal-productivity theory do not hold in our present economic system.

Bibliography

See A. Rees and D. P. Jacobs, Real Wages in Manufacturing, 1890-1914 (1961); E. H. P. Brown, A Century of Pay (1968); J. W. Wright, The American Almanac of Jobs and Salaries (serial).

wage / wāj/ • n. (usu. wages) a fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, esp. to a manual or unskilled worker: we were struggling to get better wages.Compare with salary. ∎  (wages) Econ. the part of total production that is the return to labor as earned income as distinct from the remuneration received by capital as unearned income. ∎ fig. the result or effect of doing something considered wrong or unwise: the wages of sin is death. • v. [tr.] carry on (a war or campaign): it is necessary to destroy their capacity to wage war.

wages are the returns earned by workers for their labour. Real wages reflect the actual purchasing power of these returns adjusted by price levels, while money wages involve no adjustment for inflation. The importance of wages has grown since the enclosure movement resulted in hired labour replacing self-employment on the land and as industrialization produced the factory system.

Real wages in 12th-cent. England were closely correlated to pressures of population change. Population growth in the 12th and 13th cents. reduced per capita output and famines resulted in years of bad harvests. The considerable impact of the Black Death (1348–9) on the labour force acted as a counter-balance and following it real wages rose considerably. By the 15th cent. the wages of skilled workers attained a level not reached again until the latter half of the 19th cent. Increased population pressure in the 16th cent. brought real wages down and after 1600 the index of real wages was about half its level a century earlier. The period following the Civil War saw a gradual improvement which continued through the mid-18th cent. as the agrarian revolution offset the effects of a rising population. Higher farm production also contained the fall in wages which accompanied the Napoleonic wars. Real wages rose slowly through the 19th cent. as industrialization expanded and, with the marked exception of the Great Depression and the world wars, rose throughout the 20th cent.

The pattern of money wages is different, with both a remarkable consistency characterizing long periods from the 13th until the mid-20th cent. and the absence of any major falls. Real wage adjustments have generally come about through price inflation effects. Only major shocks have brought about significant upward shifts in monetary wages—the Black Death, the Tudor debasement of the currency (1532–80), and the Napoleonic wars. The recent past has seen money wages rising since the investment boom of the post-Second World War period. Initially this may have been explained by the reluctance of employers to limit wage rises when productivity was rising rapidly but subsequently expectations on the part of labour made it difficult to contain further rises.

Various theories have been developed to explain levels of real wage. The classical economists Adam Smith and David Ricardo in the late 18th cent., although arguing that wages are an essential material necessity of production, tended to treat them as part of a distribution process—an approach continued by Karl Marx. Alternatively, T. R. Malthus placed considerable emphasis on the effects of population on wages—if real wages rose above subsistence population growth would push them down again. The neo-classical framework associated with Alfred Marshall focused on the role of real wages in balancing the supply of labour and the demand for its services as reflected by its marginal product. Neo-Keynesian economists have paid more attention to imperfections in the labour market, which make structural changes difficult as aggregate levels of demand change.

Kenneth Button