Welcome! Our Economics lessons continues, do have a great moment studying with us!

Lesson Note

Subject: Economics

Topic: Wages

Learning Objectives: By the end of the lesson, the learners should be able to:

  1. Define the term wages and wage rate;
  2. State and explain the types of wages;
  3. State and explain the factors responsible for variation in wages.



Wages may be defined as payment made to labour for the services they render in production. In other words, wages refer to the rewards paid for the services of labour. The reward for labour is wages. Wages are the price of labour.

Types of wages

i. Nominal wages: Nominal wages refer to the total amount of money paid to a labourer at a particular period of time. Nominal wages, also caller money wage, is the total amount of money paid to labour at a stated or stipulated period of time. It is measured in monetary terms.
ii. Real wages: Real wages refer to the total amount or quantity of goods and services the labour can use his money to buy. Real wages refers to the purchasing power of labour.


Wage rate may be defined as the rate at which labour is paid for the services it renders in production.

Types of wage rate

i. Time rate system: The time rate system is the type in which wages paid to labour are based on the number of hours worked. Time rated wages apply to workers whose wages are paid hourly, daily, fortnightly, or monthly basis.

Situations Where Time Rate System Can Be Applied
a. Where the quantity of work done is not easy to measure.
b. Where the quality of work done is more important than the quantity.
c. Where employees will require supervision of the employer to get full value of their wages.
d. Where certain jobs may not be done for a longer period of time due to their health implications.
e. Where incentives to workers are not necessary.
ii. Piece rate system: The piece rate system is concerned with the wages paid to labour based on the work done. In this system, payment to workers is related to the work done or output. The output of the worker is measured and he is accordingly rewarded.
Situations where the piece rate system is applied
a. Where supervision may not be necessary.
b. Where output can easily be measured.
c. Where large scale production is expected.
d. Where incentives to workers are encouraged.

Factors Responsible for Variation in Wages

The factors for the differences in wages are as follows:
1. Differences in cost of training: Professions that are costly or expensive to execute in the course of training tend to attract higher wages than those with cheaper cost of training.
2. Differences in period of training: Some professions attract longer periods of training, e.g Medical profession, and therefore attract higher wages.
3. Skill needed at work: Some professions that require special skill during training tend to have higher wages than those that do not require any skill.
4. Activities of trade unions: Some trade unions determined what their members have to be paid, e.g Chartered accountants, and this tends to make them earn high wages.
5. Forces of supply and demand: When the demand for a particular labour is higher than the supply, such labour tends to receive higher wages.
6. Level of productivity: It is assumed that in an ideal situation, the more a worker becomes productive, the higher his wages will be and vice versa.
7. Differences in hours of work: It is also assumed that in an ideal situation, the longer the number of hours worked, the higher the wages, especially when the piece rate system is used.
8. Entry qualification: Certain profession requires tough qualification and lengthy years of training, e.g Medical doctors, lawyers, etc which tend to attract higher wages while those with little or no entry qualifications tend to receive lower wages.

Determination Of Wages

Wages can be determined through the following;
a. The forces of demand and supply
b. Government activities and policies
c. The activities of trade unions.
These are discussed below:

(A) The forces of demand and supply: The wages of labour in market economy can be determined through the forces of demand and supply. In a competitive labour market, there are so many employers and unorganized employees resulting in a situation where a single employer or employee cannot influence the wage rate either by refusing to be employed or to employ.

Wage rate in a competitive labour market can be determined in the following manner:
i. When the supply of labour exceeds the demand, wage rate will fall.
ii. When the demand for labour exceeds the supply, wage rate will rise.
iii. When the demand for labour equals the supply, wage rate will be favourable to both the employer and the employee.
The determination of wages by demand and supply can be demonstrated by the graph below:

Wage Determination Graph

(B) Government activities and policies: Government institutions and wage commissions set up by the government help in determining wages, especially in the public services. In fixing wages, the government agency or wage commission takes the following factors into consideration.
i. Cost of living: The higher the cost of living, the higher wages are likely to be. If workers spend so much to get the essentials of life, then there is need to pay workers higher wages to enable them meet up.
ii. Level of productivity: The greater the level of production in the country, the higher the wage rate.
iii. Type of occupation: The wage structure varies from one occupation to another. The wage structure for each category of labour is based on the degree of scarcity of labour, the risks involved etc. So various salary grade levels arr fixed for different categories of labour in the civil service.

(C) The activities of trade unions

A trade union is an association of workers formed to enable the members to take collective, rather than individual, action against their employers in matters relating to their welfare and conditions of work. They are formed by workers who seek protection and promotion of their interests, Examples of trade unions are Academic Staff Union of Universities (ASUU), National Union of Petroleum and Natural Gas Workers (NUPENG), National Union of Road Transport Workers (NURTW), Nigerian Union of Banks, Insurance and Financial Institutions Employees (NUBIFIE) and the bigger umbrella, Nigerian Labour Congress (NLC).

Objectives Of Trade Unions

i. To secure good wages for members
ii. To participate in policy formulation for their respective organisations.
iii. To secure employment for those members who have no jobs.
iv. Trade unions also make it their responsibility to safeguard the interests of members.
v. They also regulate the entry qualifications into various professions.

Weapons That Can Be Used By Trade Union During A Trade Dispute

Trade unions can insist on achieving their objectives during a trade dispute by using the following weapons or methods;
i. Collective bargaining: In this method, representatives of the union and employers will meet to negotiate or deliberate on issues affecting the workers.

ii. Work to rule: This involves the slowing down of the rate of work by the workers. They will come to work but the rate of work will be slowed down by the workers.
iii. Picket lines: This involves the workers staying at the entrance of the factory and refusing to work.
iv. Threat to strike: The workers’ union gives ultimatum to the employer that they will embark on strike if their demands are not met on time.
v. Strike: The workers will stay away completely from work. This is the ultimate weapon.

Employers’ Association

Employers’ association is formed to enable members to adopt a common policy in labour negotiations. A good example of employers association is that of the Nigerian Employer’s Consultative Association (NECA) formed in 1957. While trade unions are usually interested in negotiations about wage increases and improving the working conditions of workers, Employer’s associations are normally interested in discussing the ways of increasing productivity. Through collective bargaining on these matters, mutual agreements are reached by both the trade union and employers’ association association.

Weapons That Can Be Used By Employers’ Association During A Trade Dispute

i. Collective bargaining: In this case both the employers’association and the trade union representatives will meet to discuss the workers’ demand.
ii. Strike breakers: In this method, the employer will use some workers to operate the place during the period of strike.
iii. Blacklist: All workers that participate in strike action will be dismissed.
iv. Lock-out: This involves the closing down of the factory by the employer until the dispute is resolved.

Done studying? See All Previous Lessons In Economics!

Take a quick test for this lesson!

  1. State and discuss the determinants of wages.
  2. State the objectives of a trade union.
  3. Identify the weapons used by trade union during a trade dispute.
  4. Define the term wages and wage rate.
  5. State and explain the types of wages.
  6. State and discuss the factors responsible for variation in wages. Questions answered correctly? Kudos!!

Do stay connected to itsmyschoollibrary.com for more educational contents.