Factors Influencing Real Wages

Besides nominal wage, real wage depends upon a variety of factor. These factors are discussed below :

Purchasing Power of Money

Real wage depends on the purchasing power of money. The amount of goods and services that labourer can buy with his money wage depends on the price level. If price level rises, the purchasing power of money falls and real wages decrease. During deflation, prices fall and real wages increase.

Additional Benefits

Real wage depends upon the additional benefits received by a worker in an occupation, Such additional benefits may be in the form of free quarters, free medical facilities, free telephone services etc. These additional benefits increase real wage.

Extra Income

Real wage also depends on the possibility of earning extra income. The private practice of a doctor, tuition of a teacher, consultancy service an engineer etc. are the instances in which there is possibility of earning extra income. It increase labourer’s purchasing power, hence real wage.

Condition of Work

Conditions of work refer to the number of hours of work, the environment in which one works, the recreational facilities provided by the employer etc. If the work is risky and hazardous, then real wage is less. Better working conditions increase the comforts and satisfaction of-the workers. Hence real wage is high.

Conditions of Employment

Conditions of employment like regularity and security of employment increase real wage. Temporary and irregularity in employment decrease real wage.

Trade Expenses

The current trade expenses of labourer affect real wage. A carpenter’s expenses on his set of tools and a lawyer’s expenses on his books, magazines and office lower their real wages.

Prospects of Promotion

In a service having bright promotion prospects. The real wage is high even though the money wage is low in the beginning.