Q.What are the determining factors of Real Wages?

Real wages are the actual quantity of goods, services and amenities a worker gets for his labour (the purchasing power of money wages), not the money figure itself. They are determined by the price level (purchasing power of money), money wages, subsidiary earnings, working conditions, regularity of work, future prospects, training cost, and non-monetary benefits.

Money wages vs real wages

Money (nominal) wages are the amount of money paid to a worker. Real wages are what those money wages can actually buy - the real goods, services and conveniences the worker enjoys. Two workers with equal money wages may have very different real wages.

Factors determining real wages

• Purchasing power of money (price level): real wages depend on the general level of prices. If prices rise, the same money wage buys less, so real wages fall; if prices fall, real wages rise.
• Amount of money wages: other things equal, higher money wages mean higher real wages.
• Subsidiary / additional earnings: extra income such as tips, bonus, commission and overtime raises real wages.
• Additional facilities and perquisites: free housing, free medical care, free education, uniforms, etc., add to real wages even if money wages are the same.
• Nature and conditions of work: a job that is pleasant, safe and less strenuous gives higher real wages than a hard, risky or dirty job for the same money wage.
• Regularity and security of employment: a permanent, secure job offers higher real wages than an irregular or temporary one. …