Nominal Wages vs. Real Wages
According to the classical wage theory, labour supply was considered a function of real wages, But according to Keynes, the workers acted irrationally and generally bargained for money wages and they sharply reacted against any cut in money wages. That is, a rise in prices does not offend labour so much as a cut in the money wage. The money wage has also been called nominal wage.
The distinction between nominal wages and real wages may be clearly understood. Nominal wages are
wages paid or received in terms of money. But money wages alone may not give us a correct idea of hat a worker rl’all)’ earns from his work. In order to ascertain real wages, which determine the standard of living of a person, the following factors have to be taken into consideration Purchasinu Power of Muncy. When comparing wages at different places and at different times the changes in the purchasing power of money must be taken into account. The purchasing power of money varies inversely with price level, i.e., higher the price, the lower the purchasing power of money, and vice versa. A part of the high wages in England and America may be due to higher prices prevailing in those countries. Three hundred rupees in a village in India may provide a much more comfortable life than a similar amount in a town or vice-versa, according to circumstances and tastes of the person concerned. One hundred rupees in 1950 had much greater purchasing power than in 1976. Even an increase of money wagesthus leaves real wages at a lower level in 1976 as compared with 1950.
It is generally supposed that the prices rise faster than money wages during the times of rising prices
and fall faster than money wages during the periods of falling prices. TIle result is that money wages decline in the former and rise in the latter case. Subsidiary Earnings. In addition to the regular money wage, an employee has exira earnings in the form of money or goods. For example, free board and lodging arc provided to the domestic servants and may in some cases be given to peons. Professors earn additional income by marking examination papers or from tuition fees, and so on. Subsidiary earnings may also arise from opportunities of employment available to other members of the worker’s family