What is wage? Definition and meaning

A worker’s Wage is the monetary compensation an employer pays for the work they have 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 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.

Image of a worker receiving his wagers in an envelope.
Image created by Market Business News.

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.”

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.

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.

Furthermore, technological advancements and the rise of automation are beginning to reshape the landscape of wage labor, as jobs traditionally done by humans are increasingly performed by machines.

Additionally, the gig economy is transforming traditional wage structures, as more workers engage in short-term, flexible jobs where pay is often project-based rather than hourly.

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.

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.

There was once a maximum wage

In 1349, Edward III, King of England and Lord of Ireland, 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.

A wage, to wage, and a salary

Below, you can see some sentences organized by the different uses of “wage” as a noun, “to wage” as a verb, and “salary” as a noun. They will, hopefully, get a better idea of how we use these terms in context:

Sentences with “wage” as a noun:

  1. “The new restaurant has been praised for offering a living wage to all its employees, which is significantly higher than the local minimum wage.”
  2. “In many industries, workers negotiate their wage annually, taking into account inflation and the cost of living adjustments.”
  3. “The disparity in wage between the executive and entry-level positions has sparked a debate about income inequality.”
  4. “Her wage as a freelance graphic designer varies each month, depending on the number and scope of projects she completes.”

Sentences with “to wage” as a verb:

  1. “The community decided to wage a campaign against the closure of the local library, organizing protests and petitions.”
  2. “During the medieval period, kings would often wage war over territory, resources, or to settle disputes.”
  3. “The company decided to wage a legal battle against the accusations of patent infringement to protect its intellectual property.”
  4. “Activists wage efforts to raise awareness about environmental issues, hoping to inspire change and government action.”

Sentences with “salary” as a noun:

  1. “After years of hard work, she was finally offered a position with a salary that reflected her experience and expertise.”
  2. “The advertised salary for the position includes health benefits and a retirement savings plan.”
  3. “He preferred a job with a lower base salary but with significant performance-related bonuses.”
  4. “The company conducts a salary review every two years to ensure that their pay scales remain competitive with industry standards.”

Two Videos

These two YouTube videos come from our sister channel, Marketing Business Network or MBN. They explain what the terms “Wage” and “Salary” mean using easy-to-understand language and examples:

  • What is a Wage?

  • What is a Salary?