List the factors that influence the level of wage

1. Ability to Pay:

The ability of an industry to pay will influence wage rate to be paid, if the concern is running into losses, then it may not be able to pay higher wage rates. A profitable enterprise may pay more to attract good workers. During the period of prosperity, workers are paid higher wages because management wants to share the profits with labour.

2. Demand and Supply:

The labour market conditions or demand and supply forces to operate at the national and local levels and determine the wage rates. When the demand for a particular type of skilled labour is more and supply is less than the wages will be more. One the other hand, if supply is more demand on the other hand, is less then persons will be available at lower wage rates also.

According to Mescon,” the supply and demand compensation criterion is very closely related to the prevailing pay comparable wage and on-going wage concepts since, in essence to all these remuneration standards are determined by immediate market forces and factors.

3. Prevailing Market Rates:

No enterprise can ignore prevailing wage rates. The wage rates paid in the industry or other concerns at the same place will form a base for fixing wage rates. If a unit or concern pays low rates then workers leave their jobs whenever they get a job somewhere else. It will not be possible to retain good workers for long periods.

4. Cost of Living:

In many industries wages are linked to enterprise cost of living which ensures a fair wages to workers. The wage rates are directly influenced by cost of living of a place. The workers will accept a wage which may ensure them a minimum standard of living.

Wages will also be adjusted according to price index number. The increase in price index will erode the purchasing power of workers and they will demand higher wages. When the prices are stable, then frequent wage increases may not be required

5. Bargaining of Trade Unions:

The wage rates are also influenced by the bargaining power of trade unions. Stronger the trade union, higher will be the wage rates. The strength of a trade union is judged by its membership, financial position and type of leadership.

6. Productivity:

Productivity is the contribution of the workers in order to increase output. It also measures the contribution of other factors of production like machines, materials, and management.Wage increase is sometimes associated with increase in productivity. Workers may also be offered additional bonus, etc., if productivity increases beyond a certain level. It is common practice to issue productivity bonus in industrial units.

7. Government Regulations:

To improve the working conditions of workers, government may pass a legislation for fixing minimum wages of workers. This may ensure them, a minimum level of living. In under developed countries bargaining power of labour is weak and employers try to exploit workers by paying them low wages. In India, Minimum Wages Act, 1948 was passed empower government to fix minimum wages of workers. Similarly, many other important legislation passed by government help to improve the wage structure.

8. Cost of Training:

In determining, the wages of the workers, in different occupations, allowances must be made for all the exercises incurred on training and time devoted for it.

 

 

Explian the difference between nominal and real interest rates.

A nominal interest rate is the interest rate that does not take inflation into account. It is the interest rate that is quoted on bonds and loans. The nominal interest rate is a simple concept to understand; for example, if you borrow $100 at a 6% interest rate, you can expect to pay $6 in interest without taking inflation into account. The disadvantage of using the nominal interest rate is that it does not adjust for the inflation rate.

A real interest rate is the interest rate that does take inflation into account. As opposed to the nominal interest rate, the real interest rate adjusts for the inflation and gives the real rate of a bond or a loan. To calculate the real interest rate, you first need the nominal interest rate. The calculation used to find the real interest rate is the nominal interest rate minus the expected or actual inflation rate. This rate gives the real rate that lenders or investors are receiving after inflation is factored in; it gives them a better idea of the rate at which their purchasing power is increasing or decreasing.

For example, suppose a bank loans a person $200,000 to purchase a house at a 3% rate. The 3% rate is the nominal interest rate, not taking factoring for inflation. Assume the inflation rate is 2%. The real interest rate the borrower is paying is 1%; the real interest rate the bank is receiving is 1%. The purchasing power of the bank only increases by 1%.

 

How to calculate real interest rate? What is the economic meaning of the real inerest rate?

What is a 'Real Interest Rate'

A real interest rate is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to an investor. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate:

Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual)

BREAKING DOWN 'Real Interest Rate'

While the nominal interest rate is the interest rate officially assigned to the product or investment, the real interest rate is a reflection of the change in purchasing power derived from an investment based on shifts in the rate of inflation. The nominal interest rate is generally the one advertised by the institution backing the loan or investment. By adjusting the nominal interest rate to compensate for inflation, you are identifying the shift in purchasing power of a given level of capital constant over time.