Performance Appraisal Tutorial | Concept of wage

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Concept of Wage


Wages and salaries constitute the core element in income for the majority of active people. Many pension schemes are based on wage levels and dynamics. But the self-employed do not receive wages, but sell directly their labor in the market.  It is found that the property and enterprise owners obtain income from rents, dividends, and other financial instruments’ gains.  In another viewpoint, wages are a major determinant of production costs.

Types of wages

Nominal wages are noted down in contracts between the employee and the organization. Real wages correct nominal wages for prices of goods and services bought by the employee.

Part of the wage may be paid in nature but the core is usually paid with money. Stock options are also used in some firms as part of the remuneration package. A part of firms’ labor cost is given to the State in terms of taxes and contributions to social funds for retirement and unemployment.


Wage levels result from individual and collective negotiations between the employees with the management of firms. Laws and negotiations decide wages in public bodies. A government cuts public expenditure trying to freeze or reduce public wages, whereas a stimulus-oriented policy might include increases. Firms and organizations pay wages to employees usually depending on working time. Individual wage often depends on occupied position in the organization as well as on education, cumulated experience and seniority. Different occupations and different industries pay working time at uneven rates. Even wage segregation is common.

Wage structure for occupations, industries and regions is subject to very slow long-term change. Imitation of wage increase in other parts of the country is a common force in action.Wage rates for the same position can be different between “normal hours” and overtime, i.e. the hours exceeding regular working hours. Usually overtime are paid better, as it occurs when the work is performed during the night or festivities (e.g. Sundays). Wages are changed at regular intervals of time, often a year, possibly within a multi-year perspective plan.

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