Explain the factors which influence the level of wages in your country.

Answer Details

The wage rate is the price paid for labour. Its level is influenced by several factors, working through the demand for and supply of labour, and through institutions such as trade unions and government.

• Demand for labour: where labour is greatly needed (high demand), wages tend to be high; where demand is low, wages are low. The demand for labour is a derived demand, depending on the demand for the goods the labour produces.
• Supply of labour: when workers with a particular skill are scarce, wages are high; when they are abundant, wages are low.
• Productivity of labour: more productive workers add more to output, so employers can and will pay them more.
• Level of skill, training and qualification: jobs requiring long training, rare skills or high qualifications command higher wages.
• Bargaining power of trade unions: strong unions can negotiate higher wages for their members.
• Government legislation: a legal minimum wage and other labour laws set a floor and influence pay.
• Cost of living: in areas or times of high living costs, wages tend to be higher to maintain real income.
• Nature of the work: dangerous, unpleasant or difficult jobs may carry higher wages to attract workers.
• Ability of the employer or industry to pay: profitable firms and industries can pay more than struggling ones.
• Mobility of labour: where workers can move easily to better-paid jobs, wages tend to equalise; immobility keeps some wages low.
• Length of training and responsibility: jobs with heavy responsibility or long preparation usually attract higher pay.
• Custom, discrimination and social factors: tradition and unequal treatment can affect the wages of certain groups.

In practice the wage in any job reflects the interaction of these forces, especially the balance between the demand for and the supply of that kind of labour.