What is wage? Definition and meaning

A worker’s wage is the monetary compensation an employer pays for the work he or she has done. The employer works out the pay rate on an hourly, daily, weekly or monthly basis. Sometimes, we use a piece rate system to determine wages, i.e. the person’s pay depends on how much they produce.

In a non-business setting, wages may refer to the consequence of an action. In such cases, they often refer to something sinful, as in “The wages of sin is death.”

Verb

As a verb, ‘to wage’ means to embark on an argument, conflict, battle or war. We can say, for example: “Hitler waged war against many nations.”

When we receive money for the work we do, we ‘earn‘ it. This contrasts with ‘winning’ money, which may happen if somebody wins the lottery.

This article focuses on the term ‘wage’ when it relates to monetary compensation for work somebody has done.

Wages are one of the expenses that a business, non-profit organization, or government department must incur.

The Financial Times Lexicon of business terms defines the term as: “Payment for labor. This is also known as salary.”


Wage

A wage packet from Kleiwarenfabriek Thissen in Helden-Beringe, The Netherlands, for the week 12-18 July 1968. Wages have been paid to workers across the world for many thousands of years. (Image: socialhistory.org)


Wage rates

Wage rates are determined by market forces – supply and demand – as well as legislation and tradition. In some countries, such as the United States, market forces are more dominant, while in Japan tradition, seniority and social structure play a greater role. Seniority, in this text, refers to how long a person has worked in the company.

Even in economies where market forces dominate, studies show that there are still differences in monetary compensation for work based on race or sex.

According to the US Bureau of Labor Statistics, women of all races only earned 80% of the median wage of their male colleagues in 2007. Some studies suggest that it will take at least five decades before we reach total gender equality in the workplace.

Wage vs. salary

People often use the terms wage and salary interchangeably. In many situations they have the same definition. However, there are some differences.

A salary has a longer-term meaning. When a person is paid on a weekly basis, for example, we say that his wages are paid weekly, we cannot say that his salary is paid weekly. Salary refers to monthly or annual amounts.

Regular monthly payments

An employee who receives a salary gets a fixed amount each month. Perhaps at Christmas they also get a bonus.

Managers receive salaries – never wages. Their monthly incomes do not vary if they work overtime. Production line workers, on the other hand, are paid overtime – their ‘wage’ varies according to how many hours they worked that week, fortnight or month.

If an employee’s income is $50,000 per year, we can say “Her salary is $50,000 per year,” but it would be strange to say “Her wage is $50,000 per year.”

Barack Obama wage quoteBarack Obama, the 44th President of the United States, once said: “It was the labor movement that helped secure so much of what we take for granted today. The 40-hour work week, the minimum wage, family leave, health insurance, Social Security, Medicare, retirement plans. The cornerstones of the middle-class security all bear the union label.” (Image: whitehouse.gov)

Minimum wage

The minimum wage is the lowest amount an employer is legally allowed to pay to workers. It is the price-floor below which workers may not sell their labor.

Most countries, even so-called free-market economies, have a minimum wage. Supporters say it reduces poverty, increases the standard of living of those at the bottom of the socioeconomic ladder, helps eliminate inequality, boosts morale, and forces employers to become more efficient.

Why are minimum wages important?

Some economists and sociologists say there are also two important reasons for having a minimum wage:

– Adequately paid employees get ill less often. If they have a living wage they are less likely to call in sick, which is better for their employer and the overall economy.

– A minimum hourly rate keeps extreme poverty levels down, which in turn helps prevent an increase in the crime rates. Extremely poor individuals are more likely to break the law in order to survive, especially if they have mouths to feed at home.

John F Kennedy wage quoteJohn F. Kennedy, the 35th President of the United States, once said: “Modern cynics and skeptics… see no harm in paying those to whom they entrust the minds of their children a smaller wage than is paid to those to whom they entrust the care of their plumbing.” (Image: whitehouse.gov)

Critics say the minimum wage increases poverty. They argue that many low-paying jobs cannot exist if minimum pay rates are compulsory. They also argue that minimum wages damage business prospects, slow down the economy, which overall fuels poverty across a country.

It is impossible to know for certain who is right – the critics or supporters of a minimum wage. The only way to know for sure would be to split a nation down the middle – with one half having a minimum pay-rate per hour and the other half with no floor. Then the two halves could be monitored over ten or twenty years. Such an experiment would be impossible to carry out.

What’s the effect on training?

Some economists argue that introducing or increasing minimum wages reduces on-the-job training, because that money is channeled to pay for the higher costs of running a business.

Harold Wilson wage quoteHarold Wilson (1916-1995), who was Britain’s Prime Minister from 1964 to 1970 and 1974 to 1976, once said: “One man’s wage increase is another man’s price increase.” It was a surprising comment, given that it came from the head of the Labour Party. (Image: gov.uk/government/history)

In 2004, voters in Florida approved raising the minimum wage. A comprehensive follow-up study reported that employment subsequently increased and the state’s economy got stronger, much to the surprise of the so-called experts.

Minimum wage in the US and UK

In the United States, employers must pay workers at least $7.25 per hour. Twenty-nine US states have set their own minimum wages higher than the federal figure.

In 2014, Connecticut introduced legislation to increase the minimum wage to $10.10 by 2017. By the end of 2017, six US states set their minimum pay rates of at least $10 per hour.

In the cities of Seattle, San Francisco, Washington and Los Angeles, there is legislation to set the minimum wage at $15 by the end of this decade.

In the United Kingdom, the minimum wage currently stands at £6.70 and £7.20 per hour for an employee aged 21-24 and 25+ respectively, and £5.30 for 18-20 year-olds.

There was once a maximum wage

In 1349, King Edward III in Britain set a maximum pay rate for laborers. He was an extremely wealthy landowner, who together with his Lords was completely dependent on serfs to work the land.

In 1348, the Black Plague reached Britain and decimated the population. This meant that there was a serious shortage of farm laborers, which caused wages to go through the roof. King Edward III did not like this and set a wage ceiling.

There is a growing movement to set limits on how much CEOs and company directors can earn.

In fact, even today, after 2008 global financial crisis, many banks that pay giant bonuses. They even pay bonuses while they are still losing money.

The taxpayer bailed out these banks to the tune of hundreds of billions of dollars.

Etymology

Etymology is the study of the origin of words and how their meaning evolve over time.

According to etymonline.com, the term ‘wage’ first appeared in the English language in the thirteenth century in Britain. It meant ‘a payment for services rendered, just desserts, reward.’

By the mid-14th century, the meaning expanded to include ‘salary paid to a provider of a service.’

The term came from Old North French and Anglo-French Wage, meaning ‘pay, pledge, reward.’ The Old French term came from Frankish Wadja, which originated from Proto-Germanic Wadi.

A Living Wage

Do not confuse ‘living wage’ with the ‘national minimum wage.’ The former allows a worker to manage financially, but is not compulsory.

Not all companies provide a living wage. However, they should. Studies have shown that staff get sick less often when their employer pays them well. That means its good for business, the individual and society overall.


Wage Drift: this term refers to the difference between basic pay and total earnings, after overtime, bonuses, commissions, profit share, and other financial benefits are added on.