The federal minimum wage is $7.25 per hour for workers covered by the FLSA. Theories of wage determination and speculations on what share the labour force contributes to the gross domestic product have varied from time to time, changing as the economic environment itself has changed. Contemporary wage theory could not have developed until the feudal system had been replaced by the modern economy with its modern institutions (such as corporations). Payment for services to a worker, usually remuneration on an hourly, daily, or weekly basis. These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘wage.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors.
Employees who receive wages cannot also receive a salary, but they can receive a commission. Salesmen and women are often paid a base wage and then paid a commission based on how many sales they make during a period. This is way for employers to encourage their sales staff to increase performance the sales floor while paying them a minimal wage.
Smith thought that wages were determined in the marketplace through the law of supply and demand. Workers and employers would naturally follow their own self-interest; labour would be attracted to the jobs where labour was needed most, and the resulting employment conditions would ultimately benefit the whole of society. Regardless of the makeup of the fund, the obvious conclusion was that when the fund was large in relation to the number of workers, wages would be high. If population increased too rapidly in relation to food and other necessities (as outlined by Malthus), wages would be driven to the subsistence level. It followed that legislation designed to raise wages would not be successful, for, with only a fixed fund to draw upon, higher wages for some workers could be won only at the expense of other workers.
If the employee’s hourly rate of pay is $15, on the 5th day following the work week, the employee will receive a paycheck showing gross wages of $600 (40 x $15). If the employee had worked only 30 hours during the work week, the paycheck will show gross wages of $450 (30 x $15). The Scottish economist and philosopher Adam Smith, in The Wealth of Nations (1776), failed to propose a definitive theory of wages, but he anticipated several theories that were developed by others.
Fair Labor Standards Act
Waged employees may also receive tips or gratuity paid directly by clients and employee benefits which are non-monetary forms of compensation. Since wage labour is the predominant form of work, the term “wage” sometimes refers to all forms (or all monetary forms) of employee compensation. Smith said that the demand for labour could not increase except in proportion to the increase of the funds destined for the payment of wages. Ricardo maintained that an increase in capital would result in an increase in the demand for labour. Statements such as these foreshadowed the wages-fund theory, which held that a predetermined “fund” of wealth existed for the payment of wages.
- Moreover, he noted that workers would need to be compensated by increased wages if they were to bear the cost of acquiring new skills—an assumption that still applies in contemporary human-capital theory.
- Since wage labour is the predominant form of work, the term “wage” sometimes refers to all forms (or all monetary forms) of employee compensation.
- This theory was generally accepted for 50 years by economists such as Nassau William Senior and John Stuart Mill.
- Ricardo’s statement was consistent with the Malthusian theory of population, which held that population adjusts to the means of supporting it.
These employees usually have a time sheet or time card to keep track of the hours worked per week. Most modern employers have computerized systems to keep track of hourly employee hours. This theory was generally accepted for 50 years by economists such as Nassau William Senior and John Stuart Mill. Thornton, F.D. Longe, and Francis A. Walker, all of whom argued that the demand for labour was not determined by a fund but by the consumer demand for products. Indeed, the total amount paid in wages depended upon a number of factors, including the bargaining power of labourers.
Wages and salaries usually include remuneration such as paid vacations, holidays, and sick leave, as well as fringe benefits and supplements in the form of pensions or health insurance sponsored by the employer. Additional compensation can be paid in the form of bonuses or stock options, many of which are linked to individual or group performance. U.S. and state law protects employees from having to work more than 40 hours per week when their wages or salary is below a certain level. In other words, a salaried employee with a relatively low annual salary must be given overtime compensation if the person’s hours worked are greater than 40 hours per week. You should be aware of the federal and state laws for your employees’ overtime compensation. Even in countries where market forces primarily set wage rates, studies show that there are still differences in remuneration for work based on sex and race.
They hold that change in the supply of workers is the basic force that drives real wages to the minimum required for subsistence (that is, for basic needs such as food and shelter). Elements of a subsistence theory appear in The Wealth of Nations, where Smith wrote that the wages paid to workers had to be enough to allow them to live and to support their families. The English classical economists who succeeded Smith, such as David Ricardo and Thomas Malthus, held a more pessimistic outlook. Ricardo wrote that the “natural price” of labour was simply the price necessary to enable the labourers to subsist and to perpetuate the race. Ricardo’s statement was consistent with the Malthusian theory of population, which held that population adjusts to the means of supporting it. Although Smith discussed many elements central to employment, he gave no precise analysis of the supply of and demand for labour, nor did he weave them into a consistent theoretical pattern.
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He did, however, prefigure important developments in modern theory by arguing that the quality of worker skill was the central determinant of economic progress. Moreover, he noted that workers would need to be compensated by increased wages if they were to bear the cost of acquiring new skills—an assumption that still applies in contemporary human-capital theory. Smith also believed that in the case of an advancing nation, the wage level would have to be higher than the subsistence level in order to spur population growth, because more people would be needed to fill the extra jobs created by the expanding economy.
Wage and Hour Resources for Employers
In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages. Overtime pay of not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek. Certain exemptions apply to specific types of businesses or specific types of work. The U.S. Department of Labor enforces the Fair Labor Standards Act (FLSA), which sets basic minimum wage and overtime pay standards. These standards are enforced by the Department’s Wage and Hour Division. To illustrate, let’s assume that the manager of a company might earn a salary of $120,000 per year.
Smith defined this theoretical fund as the surplus or disposable income that could be used by the wealthy to employ others. Ricardo thought of it in terms of the capital—such as food, clothing, tools, raw materials, or machinery—needed for conditions of employment. The size of the fund could fluctuate over periods of time, but at any given moment the amount was fixed, and the average wage could be determined simply by dividing the value of this fund by the number of workers. Technically, wages and salaries cover all compensation made to employees for either physical or mental work, but they do not represent the income of the self-employed. Labour costs are not identical to wage and salary costs, because total labour costs may include such items as cafeterias or meeting rooms maintained for the convenience of employees.
Determinants of wage rates
Bureau of Labor Statistics, in 2007 women of all races made approximately 80% of the median wage of their male counterparts. A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as minimum wage, prevailing wage, and yearly bonuses, and remunerative payments such as prizes and tip payouts. Wages are part of the expenses that are involved in running a business. It is an obligation to the employee regardless of the profitability of the company. Subsistence theories emphasize the supply aspects of the labour market while neglecting the demand aspects.