Q.What are the determining factors of Real Wages?

Real wages are the quantity of goods and services a worker can actually purchase with his money wages, i.e. the real purchasing power of the wage. The factors determining real wages are: the level of money wages; the price level and the purchasing power of money; subsidiary earnings and allowances; benefits/payments in kind (free housing, food); regularity and security of employment; the nature, difficulty and conditions of work; future prospects of promotion; and the social prestige of the job.

Money Wages and Real Wages

• Money (Nominal) Wages: the amount of money paid to a worker for his services.
• Real Wages: the goods and services that this money can actually buy, i.e. the real purchasing power of the money wages. Real wages show the worker's true standard of living.

Factors Determining Real Wages

1. Money Wages: other things equal, higher money wages mean higher real wages.
2. Price Level / Purchasing Power of Money: if prices rise, the same money wage buys fewer goods, so real wages fall; when prices are low, real wages are higher.
3. Subsidiary Earnings and Allowances: extra income such as bonus, dearness allowance and overtime raises real wages.
4. Payments in Kind: free or subsidised housing, food, uniforms, medical care, etc., add to real wages even though money wages are unchanged.
5. Regularity of Employment: a job that gives regular, secure employment throughout the year gives higher effective real wages than irregular or seasonal work.
6. Nature and Conditions of Work: risky, hard or unhealthy work reduces the net benefit, so real wages are effectively lower unless compensated. …