Factors influencing wage rates:
- Demand and supply position in the employment/labour market:
If the demand for labour is more, wages paid are higher and when the demand for labour is limited, the rates of wage payment are also low. In Western countries, wage rates are high while in India, they are comparatively low due to demand supply position. Similarly, wage rates are high during the period of inflation and prosperity while they are low during the period of depression. In brief, demand for and supply of labour influence wage and salary fixation.
- Nature and features of the job (Job Requirement):
The wage rate depends on the qualities and qualifications required for performing the job. When the nature of job is hard, higher wages are paid. Similarly, wage rate is high in the case of jobs where special qualifications and experience are required. For example, an engineer is paid more than a typist/clerk. Wage rate is higher for difficult job. Jobs are graded according to the skills, efforts, etc. Required for performing them and accordingly, wage rates are fixed.
- Cost of living:
Wage rates are raised when the price level increases. This is necessary for adjusting wages as per the cost of living. At present, wages of central government employees or of factory workers are raised when the cost of living index goes up. The rate of D. A. increases or decreases as per the movement of consumer price index (Pi). Linking of wages with the cost of living is necessary for the protection of life and welfare of the workers. The living wage criterion is quite suitable for determining wage rate as living wage enables an employee to maintain himself and his family at a reasonable level of existence.
- Bargaining power of workers:
When the trade union is strong, the workers get the benefit of higher wages. This is because of the bargaining power of the trade union leadership. Strong trade unions organize strikes, etc. for raising the wage rate. Unorganised workers are even paid less than the minimum wage as they are not united and do not have bargaining power.
- Efficiency and productivity of work force:
Efficient workers are paid more as they give more production. The wage payment increases along with the increase in the productivity of work force. This productivity is measured in terms of output for man-hour.
- State regulations
Wage rate depends on the law regarding wage payment i.e. Minimum Wages Act and linking of wages with the cost of living. Wages must be paid as per the legal provisions made by the government from time to time. This is applicable to organized workers as well as to workers from the unorganized sector, (e.g. agricultural workers, etc.) In brief, labour laws have their positive influence on wage rates. Such laws are for the benefit and protection of working class.
7. Ability of the employer to pay:
Wage rate depends on the ability of the employer to pay. Such ability depends on the profits earned, financial position of the company and so on. This is one important factor that determines the wage rate. Wage rate depends on the ability of the employer to pay. Workers are paid attractive wages when company gets huge profit. It is the organization’s ability to pay that determines the wage rate. An organization will not be able to pay more than its ability to pay.
8. Wage rates in other enterprises in the same locality:
Prevailing wage rate in the locality is the most widely used criterion for determining the wage rate at the organization’s levels. In India, wage rates are related to region-cum-industry base. Normally, wage rates in a specific area or locality are identical. The wage rates in two or more textile mills are rather identical.
9. The stage of economy:
The wage rates are related to the position of national economy. High wage rates are not possible when there is recession. There will be increase in the labour supply in a depressed economy. This, in turn, should serve to lower the going wage rates. Wage rates are normally high during the period of prosperity. In short, the economic situation in the country is one major factor that determines the wage rate.
10. Internal factors determining wage rates:
Such factors include business strategy of the company, job evaluation and performance appraisal and employee related factors such as individual performance, seniority, experience and potential. When the strategy of the enterprise is to achieve rapid growth, remuneration should be higher than what competitors pay. When the strategy is to maintain and protect current earnings, the remuneration level needs to be average or even below average.
11. Miscellaneous factors:
Such factors include security of employment, non-monetary benefits provided, working conditions, industrial relations and facilities for self development. Various examples can be given in this regard. The wage rates are low when there is security of employment. For example, wage rates are low in government departments and government funded undertakings while they are high in private sector enterprises. As regards security of employment, the position is exactly opposite. Similarly, wage rates may be low when non-monetary benefits such as free transport, housing facility, subsidized canteens, etc. are provided workers. Even the psychological and social factors determine the wage rates. Finally the employer will offer attractive wages when the industrial relations cordial and the company get good profit. On the other hand, wages will be lo when disputes, strikes, stoppages of work, etc. are frequent and the profitability low.
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