Wages In Real

Wages In Real

Wages In real life the theory is modified considerably. First, there is often confusion between money and real wages ; in the General Theory Keynes argued that employees were influenced by the amount of money they received rather than by the amount of goods and services it bought, but especially in full employment and the inflation it stimulates the emphasis has been mainly on real rather than money wages . Secondly, it is not only wages which determine the demand for labour and the supply of it but the net advantages of each type of work. Thirdly, the labour market is far from perfect: many jobs require training or special aptitude; many employees are unwilling or unable to change jobs or even their place of work; trade unions restrict entry to some trades; housing difficulties discourage movements, etc; a rise in the wages of some kinds of labour will therefore not necessarily induce an increased supply. Fourthly, trade union pressure through collective bargaining and government al influence through wages councils have radically altered the conditions of supply of labour and thus affected wages . In many industries an employer must pay the same rate to all employees in a particular grade. Wages are therefore much less flexible than theory might suggest.

The result is that the wages structure is extremely complex. It includes conventional differences in pay between various groups of employees, including lower wages to female employees than to male. The existence of different rates of wages and earnings in different regions reflects the relative prosperity and the scarcity of labour (because of higher demand and/or smaller supply) in some of them. Differences in wages between occupations arise from such factors and, like differences between industries and firms, partly reflect prosperity or ability to pay and trade union activity. Differences between skilled and semi-skilled or unskilled employees are based partly on tradition, partly on the training of the skilled employee, and his relative scarcity. In recent years the high demand for labour in Britain has narrowed this difference, and the supply of skilled workers may become even more inadequate if recruits fail to regard the higher pay as sufficient to compensate them for the long period of training.

These complications qualify the theoretical explanation of wages as determined by supply and demand, but they do not impair the basic explanation of wages as the price of labour. In so far as they affect wages , the institutional, traditional and other influences do so through their effect on the supply of and the demand for labour.

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