Definitions of Wage

According The Payment of

Acording to The Wages Act, 1936, Wages include all remunerations which
vo eXDressed in terms of money or are capable of being so expressed.
the way of
Further, these are
oither by salary allowances or otherwise. Also, the employee receives these
remunerations for fulilhng the terms of employment, either express or implied.
According to Benham, "Awage may be defined as the sum of money paid under
contract
by an employer to worker for services rendered."
According to A.H. Hansen, "Wages is the payment to labour for its assistance to
production.
According to Me. Connel, 'Wage rate is the price paid for the use of labour.

According to J.R. Turner, "A wage is price, it is the price paid by the employer to the
worker on account of labour performed"

TYPES OF WAGES
In real practice, wages are of many types as followS:

ypes of Wages

1 Piece Wages

Time Wages

3. Cash Wages

4 Wages in Kind

5 Contract Wages

1.
ece Wages: Piece wages are the wages paid according to the work
done by the worker.
taken into
caiculate the piece wages, the number of units produced by the worker are
Consideration.
 ac lul
2. Time Wages: If the labourer is paid for his services according to, time, it is called as
time wages. For example, if the labour is paid ? 35 per day, it will be termed as time
wage. (Po houu, pu day, pet week. por sucolb)dao ihe enputu,hi
emp's lwtreq ']his l t
(ue.
3. Cash Wages: Cash wages refer to the wages paid to the
l¡boyr in terms of money. The
mon1
salary paid to a worker is an instance of cash wages. Spendable
Cash
tiusen af ekecha
Emuney o1du
4. Wages in Kind: When the labourer is paid in terms of goods rather than cash, is called
the wage in kind. These types of wages are
popular in rural areas.
5 Contract Wages: Under this type, the wages are fixed in the beginning for
complete
work. For instance, if a contractor is told that he will be
paid ? 25,000 for the|
construction of building, it will be termed as contract wages.
 DIFFERENCE BETWEEN WAGE AND
SALARY
Basis for Salary Wage
Comparison
1. Meaning 1. A fixed pay that an 1. A variable pay that an individual
individual draws for draws on the basis of hours spent
the work done by him in completing the certain amount
on an annual basis. of work.

2. Skills 2. Skilled personnel 2. Semi-skilled or unskilled

3. Type of cost 8. Fixed 8. Variable
4 Rate of 4. Fixed rate 4. Wage rate
dor pes vnl f time)
payment
5. Payment cycle 5. Monthly 5. Daily
6. Basis of 6 . Performance basis 6. Hourly basis
payment

7. Paid to whom 7. Employees 7. Labour

8. Nature of work \8. Administrative-office 8. Manufacturing-process work
Work
9. KRA 9. Yes 9. No
(Key resultant area)
10. Extra pay for |10. No 10. Yes
extra hours
 THEORIES OF WAGES

Theories of Wages

1 Wages Fund Theory

2 Subsistence Theory

3 The Surplus Value Theory of Wages

4 Residual Clamant Theory

5. Marginal Productivity Theory

6 The Bargaining Theory of WageS

7. Behavioural Theories of Wages

Wages FundTheory

This
eveloped
theory is deve by classical economist named J.S Mill. According to Mill, wage
Aatarmined by wage fund and the number of workers employed. To pay the laborer,
level.

cefund is raised. Once the wage fund id rose, it is kept constant. The wage fundis
hated among the
distributed the worker's employed. The workers are assumed to be paid equal

ount is because the units of labor are homogeneous. If more workers are employed each
amountis
rker gets fewer amounts and if less number of workers is employed each worker gets
worke

more
more amount of money. The wage level is given by the ratio of wage fund and number of
workers employed.

Mathematically, this theory can be explained with the help of table and figure as
following
Wage fund W. F) No. of Workers (N)

1,00,00,000 50,000
1,00,00,000 1,00,000
1,00,00,000 1,50,000
In the above table, wage fund raised is 1,00,00,000. When the number of workers
employed is increased from 50,000 to 1,00,000 and 150000 the wage level is decreased froma
200 to 100 and 66.67 respectively. It is due to oonstant wage fund distributed among more
worker, If we represent wage level with respect to number of workers employed we obtain a
convex curve.

woge

waRSlevet

no cfworten

In the above figure, the downwardly sioped convex Curve represents inverse relationshin

of workers employed.
Detween wage level and no

Assumptions
Wage fund is rose before the
i) employment of workers.
equally out of the wage fund
) The workers are paid
 ) The units of labor are homogeneous.
iv) The wage level is flexible to the change in number of workers employed.

Money is just a medium of exchange.

Criticisms
)Wage fund is not raised before employing the workers but is rather raised on the basis of

workers employed.
to time, person to person and
) Wage paid to workers differs from place to place, time
organization to organization.
) Units of labor are not homogeneous. They differ in skill, knowledge, strength, education,
attitude etc.
and trade unions
iv) Wage level is not flexible. Wage level fall is opposed by workers
vv) Money is not mere medium of exchange. It has effect on production, investment,
employment level etc.
Clssical Cconomis t, oliti(ian
2. Subsistence Theory
This theory was propounded by David Riçardo (1772-1823). According to this theory,
SUTVIV
The labourers are paid to enable them to subsist Kee? 9ing the race without increase
and perpetuaté
The basic assumption of
or diminution". This payment is also called as 'sübsistence wages'.
this theory is that if workers are paid wages more than subsistence level, workers' number
will increase and, as a result wages will come down to the subsistence level.

On the contrary, if workers are paid less than subsistence wages, the number of
workers will decrease as a result of starvation death; malnutrition, disease etc. and many
would not marry. Then, wage rates would again go up to subsistence level. Since wage rate
tends to be a subsistence level at all cases, that is why this theory is also known as Iron
Law of Wages. The subsistence wages refers to minimum wages.

The theory of population, expounded by Malthus was also based on this "iron law"
According to this theory, wages tend to remain at the subsistence level. Wages paid to
workers is just sufficient to fulfll their basic needs, Workers don't have surplus income. If
wages rises above this level, this leads to an increase in the population because the
increased prosperity of workers will encourage the workers to marry sooner and increase
population. This will inerease labor supply. The increased competition among workers for
employment causes wages to fall again to the subsistence level. Likewise, if the wages fall
below the subsistence level, there will be fewer wages and no prosperity. People will have
less interest in marriage. Fewer children are born. This will reduce the supply of labor. The
competition for employment is reduced and wages tend to rise to the subsistence level.
 the wages remain at the subsistence level. The French School of economists, as the
F i n a l l y

ats, looked upon this theory of wages as a natural law. Quesnay had said, "Wages
phyand
ixed and reduced
aret
to the
t lowest level by the extreme
reduced
competition of the workers"
C r i t i c i s m s

es the demand side of labor

This theory is one-sided. It explains the wages from the supply side only. It completely
od the demand for labor. But if a rise in wages leads to an increase in population, tne
gnored

er supply
larger supply of labor may be balanced by an increase in the demand for labor.

s No direct relationship between wage level and population

According to this theory, population increase if the workers are paid above the
subsistence level but empirical evidences show the decrease in population or its rate of
CrOwth in developed nations even if there is increase in wage level. People spend money on
education, fanmily planning, skill development too.

ii) Ignores trade unions

This theory has ignored trade unions through which the workers make the collective
bargaining for their benefits.

iv) Not flexible wage level

Wages of all workers is at the subsistence level and is not flexible towards up and
down. However, wages can differ from occupation to.occupation and from place to place.

v)Exploitative
There is tendency toward exploitation in this theory. Because, according to the theory
wages must be equal to the subsistence level and-not for comforts and luxuries.

3The Surplus Value Theory of Wages Philosuphes, thec1int,histon0

This theory was developedby Karl Marx (1849-1883). This theory is based on the basic
a8sumption that like other article, labour is also an article which could be purchased on
payment of its price i.e. wages. This payment, according to Karl Marx, is at subsistence
level which is less than in
proportions to time, labour takes to produce items. The surplus,
ording to him, goes to the owner. Karl Marx is well known for his avocations in the
favour of labour. no7

n Mar's estimation, it was not the pressure of population that drove wages to the
uDS1stence level but rather the existence of large numbers of unemployed workers. Marx
blar
unemployment on capitalists. He renewed Ricardo's belief that the exchange value of
 create it. Furthermore
any product was determined by the hours of labour necessary to re,
Marx held that, in capitalism, labour was merely a commodity: in exchange for work, a
labourer would receive a subsistence wage. Marx speculated, however, that the owner of

capital could force the worker to spend more time on the job than was necessary tor earning
this subsistence income and the excess product or surplus value thus created would be
claimed by the owner. This argument was eventually disproved and the labour theory of
value and the subsistence theory of wages were also found to be invalid. Without them, the
surplus-value theory collapsed.
Marx himself considered his theory of surplus-value his most important contribution to
the progress of economic analysis (Marx, letter to Engels of 24 August 1867). It is through
this theory that the wide scope of his sociological and historical thought enables him
simultaneously to place the capitalist mode of production in his historical context and to find
the root of its inner economic contradictions and its laws of motion in the specific relations
of production on which it is based.
4. Residual Claimant Theory
to
This theory owes its development to Francis A. Walker (1840-1897). According
labour, capital
Walker, there are four factors of production or business activity, viz., land,
factors are rewarded what remains
and entrepreneurship. He views that once all other three
worker is the residual
left is paid as wages to workers. Thus, according to this theory,
factors of production have
claimant. The residual-claimant theory holds that, after all other
received compensation for their contribution to the process; the amount of capital left over
a theory for wages, since he said that
will goto the remaining factor. Smith implied such
rent would be deducted first and profits next. In 1875
Walker worked out a residual theory

of wages in which the shares of the landlord, capital owner and entrepreneur
were

determined independently and it subtracted, thus leaving the remainder for labour in the
form of wages. It should be noted, however, that any of the factors of production may be
selected as the residual claimant assuming that independent determinations may be made
for the shares of the other factors. It is doubtful, therefore, that such a theory has much
value as an explanation of wage phenomena.
This theory was advanced by the American economist Walker. As per walker, wages
are the remainder left in excess of after the other factors of creations have had been
remunerated. The American economist Walker states that interest and rents are
 administrated by contracts, income dogged by explicit ideology and that there are no
are

comparable philosophy operating in regard to wages. Out of the total production, therefore
when real, interest and profits have been paid; the remainder goes to the human
resourceg
as wages. As compared with the other
theories, this theory is quite optimistic.
a) It holds out to the workers a likelihood of
growing their wages and then bettering their lot
if they worked hard. If by working more
they produce then,
more, according to this
theory, the whole of the extra production will go to them.
b) The Residual Claimant Theory
acknowledges the opportunity of boost in wages through
superior competence of labor. In this logic, it is a positive theory, whereas the other two
theories wages fund theory and the subsistence theory is
negative.
Criticism of the Residual Claimant Theory
This theory, too, has been rejected by most economists.
i In the first place it does not explain how trade unions are able to raise wages.
i. Secondly, it ignores the influence of supply of labor on wages.
ii. Thirdly, one fails to understand why the same laws of demand and supply, that explain
the remuneration of other factors of production, should not be
applied to wages as well.
iv. Finally, the residual claimant is not the worker but the entrepreneur, who undertakes to
pay other factors of production before he can expect to get
anything.
Hence the Residual Claimant Theory also failed to
put forward a substantial theory
explaining the prevailing rates of wages in a country.

5.Marginal Productivity Theory lal }o ihe yal ut he

This theory was propounded by
Phillips Henry Wick-steed (England)
and John Bates
Cale of U.S.A. According to this
theory, wages is determined based on the
contributed by the last worker, ie. marginal worker. production
His/her production is called
production .The marginal productivity theory was first stated 'marginal
has been developed by Wicksteed Walras J. B. by Von-Thunen. The theory
Clark and many others.
theory Statement of the

Marginal productivity theory of wage explains that under

wage is
perfect competition a worker
equal to marginal as well as average revenue
productivity. In other words marginal
revenue productivity and average revenue
productivity (ARP) of a worker determine his
wage According to this theory wage of a laborer is determined by his
In other words MRP =M.W. Marginal marginal productivity.
productivity is the addition made total productivity
by employing one more unit of aerlaboura. As the laborers are
given money wage their
marginal productivity is calculated in terms of money. This is
called marginal revenue
productivity (MRP).
Assumptions
(1) Perfect competition prevails in both product and factor market.
(1) Law of diminishing marginal returns operates on the marginal productivity of labour.
Labour is homogeneous.
v) Full employment prevails.
(v) The theory is based on long run.
(vi) Modes of production in constant.
 Criticism
i. The theory is based on the assumption of perfect competition. But perfeet oompetition
is
unreal and imaginary. Thus theory seems in practicable.
ii. The theory puts too much on demand side. It ignores supply side.
ii. to
Production is started with the combination of four factors of production. It is ridieulous
say that production has increased by the additional employment of one worker
Employment of an additional laborer amounts nothing in a big scale industry.
iv. The theory is static. It applies only when no change occurs in the economy. Under
depression wage cut will not increase employment.
V. This, theory explains that wages will be equal to MRP and ARP.
vi. It is diff+icult to measure MRP because any product is a joint product of both fixed and
variable factors.
vii. According to Watson the theory is cruel and harsh. This theory never takes into
consideration the marginal product of old, aged, blind etc.
6. The Bargaining Theory of Wages
John Davidson was the pro-pounder of this theory. According to this theory, the fixation
of wages depends on the bargaining power of workers/trade unions and of employers. If
workers are stronger in bargaining process, then wages tends to be high. In case,
employer
plays a stronger role, then wages tends to be low.

This theory has its roots with the late Prof. A. C. Pigou. His theory explains the
process by which labour and management establish upper and lower wage limits within
which a final settlement is made. The upper limit presents the union ideal wage
Management will offer a wage that is well below that acceptable to the union. From these
two extremes, the union and the management team will normally proceed through a series
of proposals and counter proposals. The union will gradually reduce its
the
wage demands while
employer will raise its wage offer. Both sides, however, have established limits as to how
far they are willing to conceived and in the process establish taking point.
According to this
theory, the exact settlement point will depend on the Bargaining skills and strength of the
union and management negotiators.

a) Chamberlain Model
This model focus on upon the determinants of Bargaining power and the
ways in which
changes these determinants lead to settlement in the majority of the collective Bargaining
in
situations. He defines power as the ability to secure opponents
agreement to your terms
Thus a union Bargaining power can be defined as
management willingness to agree to the
union terms or demands.
 Tf management estimates that it is more costly to agree than to disagree (i.e. if the
Tfnions Bargaining Power 1s less than one), management will chose to disagree and there by
Jn
aiect the unions terms. If however, management judges that
reje it is more costly to disagree
han to agree Once again if the union believes that it is more costly to agree than to
disagree the union will disagree with managements offer whenever the denominator1s
meater than the numerator in eq. 2 i.e., whenever the management is bargaining power 1s
great

less than 1; the union will choOse to reject managements offer. Conversely, if the union
iudges it to be more costly to disagree than to agree, the union will choose to agree. In other
word, when managements bargaining power greater than 1, the union will be willing to
accept managements offer. The unions cost of disagree and agreeing can be defined similarly
to those of management.

The chamberlain bargaining power model has no. of salient feature:

) At least one party must perceive disagreement to be more costly than agreement in order
for the agreement to occur.
Once bargaining power is relative in that it depends on the size ofthe wage increase on is
asking for or offering.

3) Misjudgments of the maximum offer the employer will make (or the minimum offer the
union will accept) or the commitment of the parties to irreconcilable positions may result
in strike even though a mutually acceptable settlement exist.

4) Compromise offers (and demands) and the approach of the bargaining deadline both tend
to remove the parties toward the agreements.

5) The model allows for coercive tactics (which increase opponents cost of disagreeing) and
for persuasive tactics (which reduce your opponents cost of agreeing.
66) The economic environment, including both the state of the macro economy and industry
structure can affect the Bargaining power of both the parties.

b) Hicks Bargaining Model

This model focuses on the length and the cost of work stoppages. Hicks proposed that
union and management negotiators balance the cost and benefits of a work stoppage when
making concessions on the Bargaining table. Each side makes concessions to avoid a work
stoppage. The central idea is that there is a functional relation between the wage that one
Or the other party will accept and the length of the strike that would be necessary to

establish that wage. There is a particular wage that the employer would prefer if the union
B not in the picture. He will concede more, however, in order to avoid a strike and up to a

POint, his concession will rise with the length of the strike he anticipates. A primary
curference between the hick's model and Bargaining Range theory is that the hicks model
PAnpoints precise wage settlements while the range theory does not.
 c) Negotiating models
Walton and Mkersie proposed one of the most influential models in analysi
negotiations. They distinguished the following four systems of activity or sub processen alysing
labour negotiations, each having its own functions for the interacting parties.
processes in
)Distributive bargaining: The function of which is to resolve conflicts between th.
the
parties.
2) Integrative bargaining: The function of which is to find common or complementa
ary
interest.
3) Attitudinal structuring: The function of which is to influence the attitudes of the
participants towards each other.
4 Intra organizational bargaining: The function of which is to achieve consensus
within each of the interacting group. Based on research studies and action programmes
conducted, some behavioural scientists I have also developed theories of wages. Their
theories are based on elements like employee's acceptance to a wage level, the prevalent
internal wage structure, employee's consideration on money or' wages and salaries as
motivators.

7 Equity Theory
Equity can be external or external. Internal equity refers to the pay differential
between and among the various skills and levels ofresponsibility. External equity refersto
concerns regarding how. wage levels for similar skill levels in one firm compare with tho8e
in other firms in similar or the same industry and location.

8. Expectancy theory
It suggests that motivation depends on individuals' expectations about their ability to
perform tasks and receive the desired rewards. An employer's responsibility is to help
employees meet their needs and at the same time, attain organizational
must try to find out match between
goals. Employers
employees' skills and abilities and the job demands.

WAGE STRUCTURE
Wage structure is generally the levels or hierarchy of job and pay ranges. It 1S e
interrelationship of the levels of pay for different types of employees.
It may mean the way the total wage of a
worker or group of workers is composed, to r
example including such elements as a basic
rate, a piecework bonus and other f
bonus, overtime, etc. It may also mean the established system of
forms
pay differentials between
groups workers by occupation or the pattern of differentials on the
basis of grade or status.
 WAGES STRUCTURE IN INDIA
The employee benefit package normally contains apart from basic wage, a dearness
fawance, overtime payment, annual bonus, incentive systems and a host of fringe benefits.
allov

1. Basic Wage

Section 2(6) "basic wages" means all emoluments which are earned by an employee
hile on duty or on leave or on holidays with wages in either case in accordance with the
whil
terms of the contract of employment and which are paid or payable in cash to him, but does
not include:

The cash value of any food concession;

Any dearness allowance (that is to say, all cash payments by whatever name called paid
to an employee on account of a rise in the cost of living), house rent allowance, overtime
allowance, bonus, commission or any other similar allowance payable to the employee in
respect of his employment or of work done in such employment;

Any presents made by the employer;

2. Dearness Allowance
Dearness Allowance (DA) is a cost of living adjustment allowance paid to Government
employees, Public Sector Employees (PSU) and pensioners in India & Bangladesh. Dearness
Allowance is calculated as a percentage of an Indian citizen's basic salary to mitigate the
impact of inflation on people.

3.Overtime Payment
Overtime is the additional amounts paid to hourly employees who work more than 40
hours in a workweek. Federal law requires that hourly employees who work more than 40
hours in a workweek must be paid at a higher rate for the overtime hours, at a minimum
of 1 1/2 times the employee's regular pay rate.

4. Annual Bonus

The bonus component of the industrial compensation system, though a quite old one,
had assumed a statutory status only with the enactment of the Payment of Bonus Act,
965. The Act is applicable to factories and other establishments employing 20 or more
employees.
Eligibility: Every employee not drawing salary/wages beyond ? 10,000 per month who
Bas worked for not less than 30 days in an accounting year, shall be eligible for bonus for
minimum of 8.33% of the salary/wages even if there is loss in the establishment whereas a
maximum of 20% of the employee's salary/wages is payable as bonus in an accounting year.
 However, in case of the employees whose salary/wages range between ? 3,500 to ? 10,000 per
month for the purpose of payment of bonus, their salaries/wages would be deemed to be ?

3,500.

5. Incentive Systems

The term "incentive" has been used both in the restricted sense of participation and in
the widest sense of financial motivation. It is used to signify inducements offered to
employees to put forth their best in order to maximise production results. Incentives are.
classified as financial and non-financial. Important financial incentives are attractive wages,
bonus, dearness allowance, traveling allowance, housing allowance, gratuity, pension and
provident fund contributions. Some of the non-financial incentives are designation, nature of
the job, working conditions, status, privileges, job security, opportunity for advancement and
participation in decision making However, a vast diversity exists in regard to policy and
practice of incentive payments. ncentive systems also have been classified into three groups:
individual wage incentive plan, incentive scheme and organisation-wide incentive system.

The individual wage incentive plan is the extra,compensation paid to an individual over
a specified amount for his production effort Individual incentive systems are based upon
certain norms established by work measurement techniques such as past performance,
bargaining between union and the management, time study, standard data, predetermined
elemental times and work sampling. There are four types of individual incentive
systems
such as measured day-work, piece-work standard, group
plans and gains-sharing plans.
Under the measured day-wo incentive wage system, an individual receives his
regular
hourly rate of pay, irrespective of his performance. Piece-work system forms the most simple
and frequently used incentive wage. I this, individual's
earnings are direct and proportionate
to their output. Group plans embody a
guaranteed base rate to the workers in which the
performance over standard is rewarded by a proportionate premium over base pay. Gains-
sharing system involves a disproportionate increase in monetary rewards for increasing
output beyond a predetermined standard. As the gains are shared with the
entrepreneurs,
theworker gets less than one per cent increment in wage for every one percent increase in
output.
The group incentive scheme provides for the payment of a bonus
or area
either equally
or proportionately to individuals within a
group or area. The bonus is related to the output
achieved over an agreed standard or to the time saved on the job - the difference between
allowed time and actual time. Such schemes may be most appropriate where:

(a) People have to work together and teamwork has to be encouraged; and

b) High levels of production depend a great deal on the cooperation existing among a team of
workers as compared with the individual efforts of team members.
6. Fringe Benefits
The remuneration that the employees receive for their contribution cannot be measured
by the estimation of wages and salaries paid to them. Certain supplementary benefits
mere

and services known as "fringe benefits" are also available to them. The characteristics of
fringe benefits are:

These benefits are distinctly additional to the regular wages paid to the workers. As
such, they are not provided substitute for wages or salaries of the
as a employees. These
benefits are meant primarily to be of advantage to the employees.

The advantages accrued to the employees through the provision of fringe benefits are as
such they cannot be secured through their own individual efforts.
Only those benefits fall within the purview of fringe benefits which are or can be
expressed in cash terms. The scope of fringe benefits is different from that of welfare
services. Fringe benefits are provided by the employers alone whereas welfare services may
 wwe

WAGE FIXATION
Wage fixation is the industrial tribunal that establish appropriate wage levels for
workers. rather than letting workers and their employer work it out themselves through
enterprise bargaining. This is the remuneration payable to an employee for personal
services, including salaries, commissions, holiday and vacation pay, overtime pay, severance
pay or dismissal pay, supplemental unemployment benefit plan
payments when required
under a binding collective bargaining agreement, bonuses and any other similar
advantages
agreed upon between the employer and the employee or provided by the employer to the
employees as an established policy.
 WAGE PAYMENT
Wage payment is a payment made to an employee for the work they have done,
snecially one who is paid weekly. It requires most Wisconsin employers to pay all workers
ll wages earned at least monthly with no longer than 31 days between pay periods. The

only employers exempted from such logging operations and farm labor must be paid no less
often than at regular quarterly intervals. requirements are those engaged in logging

operations and farm labor. Employees engaged in Employers may establish more frequent
pay periods.

Employees who quit or who are discharged from their job must be paid in accordance
with the employer's regular pay schedule. Commissioned employees should be paid based on
whatever pay system was established throughout employment unless there is a specific
written agreement.

SALARY ADMINISTRATION
Salary administration is the process of compensating an organization's employees in
accordance with accepted policy and procedures.
 BASIS FOR COMPENSATION FIXATION
Followings are the basis for compensation fixation:
1. Preserving real income

This is the argument used by employees and Unions viewing wages as an income.
Inflation, indexation becomes a problem of an institutionalized wage-price spiral. Underlying
Following this principle usually results in wages being indexed to inflation. In periods of
rising aspects that have also impacted on real wage preservation arguments have been a
"basic" minimum wage and comparative wage justice.

2. Labour productivity

Measurement of productivity. Rewarding labour with a wage increase when technology

and/or A valid economie theory connects wages to labour productivity. Conflict arises over
the capital investment, increases labour efficiency may not be justified.
 3. The capacity of business to afford wage increases
This emphasizes wages as a cost of production and the threat of wage increases

squeeze profits. This "capacity" argument is that followed by business owners.

4. The capacity of the Economy to absorb wage increases
This "capacity" argument views the macro impact of wage increases on inlation
competitiveness and other aspects of internal and external balance; as well as the effect on
business profits and investment from 3. This is the main argument of the Federal
Government recognizing the macro policy potential of an Incomes Policy to address external
and internal balance goals to supplenment demand management policies and the effects on

income distribution.

5. Supply and Demand of labour

The labour market conditions or supply and demand forces operated at the national
regional and local levels and determine organizational wage structure and level. If the
demand for certain skills and the supply are low, the result is a rise in the price to be paid
for these skills. The other alternative is to pay higher wages if the labour supply is scarce
and lower wages when it is excessive.

6. Prevailing Market rate

This is also known as the 'comparable wage' or 'going wage rate' and is most widely
used criterion. An organization's compensation policies generally tend to conform to the wage
rates payable by the industry and the community. It is observed: Some Companies pay on
the high side of the market in order to obtain goodwill or to insure adequate supply of
labour, while other organizations pay lower wages because economically they have to or
because by lowering hiring requirements they could keep jobs
adequately
manned.
7.Living wage
This means that wages paid should be adequate to enable
employee to maintain
an
himself and his family at a reasonable level of
existence. However, employers do noe
generally favor using the concept of a iving wage as a guide to wage determination because
they prefer to base wages of an employee on his contribution rather
on his need.
8. Managerial Attitudes

Top management's desire to maintain or enhance the

factor in I wage policy of a number of firms. company's prestige is a ma
Desires to improve or maintain morale,
attract high caliber employees, to reduce turnover
and to provide a high
living standard l
employees as possible also appear to be factors in management's
wage policy decisions.
 VARIOUS COMPONENTS OF
WAGES
Various componenis of wages are:
1.Fixingofminimum wages
The appropriate government shall fix the minimum rates of
wages payable to
employees employed in the industries specified in the schedule. Revision can take place once
infive The minimum wage may be fixed at a time rate',
'piece rate', 'guaranteed time rate
and 'overtime rate'. Minimum rate of wages: It consists of
A basic rate of wages and a cost of living allowance.
i. A basic rate of wages and a cost of living allowance and the cash value of the concessions
in respect of supplies of essential commodities of concession rates.
2. Working hours
The Government of India has fixed 48 hours per week.

3.Overtime
Where an employee works on any day in excess of the number of hours constituting a
normal day, the employer should pay him the overtime rate as three times the daily wage.

4. Employers' obligation
Once the minimum wages are fixed or revised according to the procedure, it becomes
the legal obligation of the employers to pay the rates. They cannot plead the incapacity of
the industry to pay.

5. Exemptions
The government may direct that the provisions of this Act shall not apply in relation to
the wages payable to disabled employees.

6. Content of minimum wages

The bare subsistence of life but also for the preservation of the worker's efficiency by
providing The Fair Wages Committee viewed that the minimum wages must provide not
nerely for some measure of education, medical aid & amenities.

7.Different categories
The Act permits fixation of different minimum rates of wages for different classes of
Work in the same scheduled employment.
8. Payment of minimum bonus
respect in of any accounting year
Every employer shall be bound to pay every employee
the whole year.
a minimum bonus of 8.33% of the salary earned by him in

9. Payment of maximum bonus

minimum bonus payable to the
Where the allocable surplus exceeds the amount of
20% of a month salary.
employees, the employer should be bound to pay every employee

10. Computation of working days

deemed to have worked on the days on which he/she had been
An employee shall be
the Industrial Disputes Act was on leave
laid off under an agreement, standing orders, or

with salary was absent due to temporary disablement caused by

an accident arising out of.

11. Special provisions for new establishments

Bonus shall be payable only in respect of the accounting year in which the employer

derives profit.

BASIC WAGES
The concept of basic wage is contained in the report of the Fair Wages Committee.

According Committee, the floor of the basic pay is the "minimum wage" which
to this
provides "not merely for the bare sustenance of life but for the preservation of the efficiency
of the workers by providing some measure of education, medical requirements and
amenities." The basic wage has been the most stable and fixed as compared to dearness
allowance and annual bonus which usually change with movements in the cost of living
indices and the performance of the industry.

OVERTIME WAGES
Working overtime in industry is possibly as old as the industrial revolution. The
necessity of the managements' seeking overtime working from employees becomes inevitable
mainly to overcome inappropriate allocation of manpower and improper schedulingof
absenteeism, unforeseen situations created due to genuine difficulties like breakdown
machines. In many companies, overtime is necessary to meet urgent delivery dates, sudae"

upswings in production schedules, or to give management a degree of flexibility in matcn

labour capacity to production demands. The payment of overtime allowance to the
1ac
and workshop employees is guaranteed by law. All
employees who are deemed to be work
under the Factories Act or under the Minimum Wages Act are entitled to it at twice e
ardinary rate of their wages for the work done in excess of 9 hours on
any day or for more
th 48 hours any week. The major benefit of overtime working to workers is that it offers
in income from work.
an increase

DEARNESS ALLOWANCE
The fixation of wage structure also includes within its
compass a fixation of rates of
dearness allowance. In the context of a changing
pattern of prices and consumption, real of
the workmen likely
are tofluctuate greatly. Ultimately, it is the goods and services that a
worker buys with the help of wages that are an important consideration for him. The real
wages of the workmen thus require to be protected when there is a rise in prices and a
consequent increase in the cost of living by suitable adjustments in these wages. In foreign
countries, these adjustments in wages are effected automatically with the rise or fall in the
cost of living.