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What are wages?

Wages are the reward to the factor of production – Labour. Wages are also regarded as the Price of labour. Wages are payments made to labour. Price of labour is determined by the market forces i.e. demand and supply.

Demand for labour

The demand for labour is a derived demand. It means that the demand for labour is linked with the products or services they produce. If the demand for those commodities rises the demand for labour also rises.

Factors affecting the demand for labour

Derived demand

The demand for labour is always derived from the demand for the good or service it produces. Thus if the demand for a particular goods or service increase it will lead to a rise in demand for labour used to produce those commodities. Recently there has been an increased demand for software professionals due to the increased demand for IT products.

Wage rates

A fall in wages will cause an extension in the demand for labour while a rise in wages paid to works will cause a contraction in demand.

Technology used

In industries where there is improved technology can be used, the demand for labour will tend to fall as producers will replace labour with sophisticated machinery.


Supply of labour

Supply of labour increases with the rise in wage rate. The supply curve of labour normally slopes upward to the right.

Factors affecting the supply of labour

Wage rate

In most cases the supply of labour will increase with the increase in wages. This is because more workers will be attracted by a higher wage rate and moreover the existing workforce may be willing to work overtime at a higher wage rate.

Size of the population

An increase in population will lead to an increase in supply of labour.

Social factors

With more and more women entering the labour market the supply of labour has increased in the recent times.

Working age

Lowering the working age of will increase the supply of labour. An increase in the retirement age will increase the supply of labour.

Educational requirement

Jobs which need special training or educational qualifications will see less supply of labour as compared to jobs which don’t need high level of educational qualification.

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