Concept of Wages

Dr Aneesh M R
Wage concepts
• The term ‘wages’ may be used to describe one of several concepts,
including wage rates, average hourly earnings, gross average hourly
earnings, weekly earnings and annual earnings.
• The term ‘compensation’ is of a recent origin which includes
everything an employed individual receives in return for his work.
• Wage, in the widest sense, means any economic compensation met by
the employer under some contract to his employees for the services
rendered by them
• The concept earnings relates to remuneration in cash and kind paid to
employees, as a rule, at regular intervals for time worked or work done
together with remuneration for time not worked.
• The two terms often used interchangeably are “wages” and “salary”.
Several terms has used referring to the wage levels:
• Statutory minimum wage
• The minimum wage
• The fair wage
• The living wage
• The need based minimum wage
Minimum wage
Minimum wages have been defined as “the minimum amount of remuneration
that an employer is required to pay wage earners for the work performed during a
given period, which cannot be reduced by collective agreement or an individual
contract” (ILO).

There can be three kinds of minimum wage

• A minimum wage notified by the government under the Minimum Wages Act,
1948 for different employment.
• A minimum wage drawn by an unskilled worker in an organised industry as a
result of wage settlement which is purely the result of hard bargaining
• Need- based minimum wage determined as per the norms prescribed by the 15 th
session of Indian Labour Conference.
Need- based minimum wage
To calculate the minimum wage, the committee accepted the following
five norms and recommended that they should guide all wage fixing
authorities, including minimum wage committees, wage boards and
adjudicators.
• In calculating the minimum wage, the standard working class family
should be taken to consist of three consumption units for one earner
• Minimum food requirements should be calculated on the basis of a net
intake of 2700 calories
• Clothing requirement should be estimated at a per capita consumption
of 18 yards per annum which could give the average workers’ family
of four, a total of 72 yards.

• In respect of housing, the norm should be the minimum rent charged

by government in any area for houses provided under the subsidised
industrial housing scheme for low-income groups.

• Fuel, lighting and other miscellaneous items of expenditure should

constitute 20 percent of the total minimum wage.
Fair wage
• The Encyclopaedia of Social Sciences describes a “fair wage” as one
equal to that received by workers performing work of equal skill,
difficulty or unpleasantness.

• The Committee on Fair Wages stated that the fair wage was something
between a minimum wage and a living wage.

• The lower limit of a fair wage must obviously be the minimum wage,
the upper limit is equally set by what may broadly be called the
capacity of the industry to pay.
Living Wage
• Justice Higgins defined living wage as one appropriate for “the normal
needs of the average employee, regarded as a human being living in a
civilized community”.
• There are three possible ways of obtaining some indication as to what
constitutes a living wage:
• It should be sufficient to pay for a satisfactory basic budget.
• It should be sufficient to purchase the minimum needs of a typical family,
calculated in accordance with some more or less scientific formula
• It should be comparable with a living wage already established in similar
circumstances.
Wage Payment
• All wage system must satisfy the basic needs of the employee for
food, shelter, clothing and reasonable compensation for their efforts.
• TIME BASED WAGE SYSTEM
• PIECE BASED WAGE SYSTEM
• All other wage system are combinations of these two methods of wage
system
Time wage system

• Wages are calculated on the basis of time worked irrespective of the

quality of work done.
• Thus the wages are calculated by multiplying the time spent by
predetermined rate of wages.

• Wage = Time spent *Rate per unit of time

W = T*R
Where T = Time spent in Hours
R = Rate per hour
Advantages

• Simple system and economical.

• It gives workers a sense of security as they know that they will be
compensated for time spent within the organisation irrespective of
their efficiency.
• The quality of the output can be maintained because workers are not in
a hurry to complete the job for they are paid on time basis and not on
the basis of output produced.
• Minimise material wastage as the work is not dome in hurry.
• This system works best on artistic jobs where quality of output is of
prime consideration
• Workers can easily understand the calculation of their wages
Disadvantages
• The system does not differentiate between efficient and inefficient
workers. As wages are paid in terms of time spent, it decreases the
morale of efficient ones.
• It requires continuous supervision.
• As the workers are not in hurry to work, it may affect production.
• Under this process the workers generally adopt the policy of go slow.
• This system has no positive inducement for workers so that they could
enhance their efficiency.
Variations in Time Wage System

• High Day Rate: in this case the rate of wages is fixed at level higher
than the one prevalent in industry to attract best and efficient workers.

• Graduated Time rate System: A system of wage where the basic time
rate is flexible so that it may be adjusted according to the cost of living
index. Here the worker is compensated for increase in cost of living
index.
Piece Rate System
• Under this system, the wages are paid to a worker on the basis of
output produced by him without considering the time taken in
performing the work.

• Wages = N*R
• Where N = no. of unit produced.
R = Rate per unit
The earning of workers depends on the speed of the work and his own
individual skills and efficiency
Advantages
• Work as an inducer for workers to produce more.
• Here reward is related to efforts.
• This method is fair to all as inefficient workers are penalised and
efficient workers are rewarded.
Disadvantages
• In an effort to produce more and earn more workers may exert
themselves to fatigue.
• Workers feels insecure in this system because they will lose wages for
the period of absence.
• This system requires an up-to-date record of output produced by each
workers which increase the clerical works.