What is wage? Definition and meaning

The definition and meaning of a worker’s wage is the monetary compensation an employer pays for work done – payment is worked out on an hourly, daily, weekly or monthly basis. In some cases, wages are linked to piece rate, i.e. the person is paid according to how much is produced.

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

As a verb, ‘to wage’ means to embark on an argument, conflict, battle or war, as in “Hitler waged war against many nations.”

Wage imageA 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)

This article focuses on the term ‘wage’ when related to monetary compensation paid or received for work done.

Wages are one of the expenses that are involved in running any commercial enterprise, non-profit organization, or government department.

The Financial Times Lexicon of business terms defines wage as:

“Payment for labor. This is also known as salary.”

What determines 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.

Wage Salary and Compensation1. Wages: paid to blue-collar workers either on a daily, weekly or monthly basis. 2. Salary: paid to white collar workers and executives on a monthly basis. 3. Compensation: includes wage/salary plus other allowances and perks such as company car, subsidized meals, commuting costs, housing, etc.

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 total gender equality in the workplace is reached.

Wage versus salary

The terms wage and salary are often used interchangeably, and in many situations 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.

An employee who is paid a salary receives a fixed amount – often an annual total divided by twelve for each month, or by thirteen if there is a Christmas bonus (he/she gets paid double in December).

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.

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, because many low-paying jobs cannot exist if minimum pay rates are enforced. 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.

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 are not allowed to pay workers less than $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, it is estimated that six US states will have 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.

Minimum Wage Purchasing Power USAIf we fix the dollar to its 2012 purchasing power level, it becomes clear that an American worker on the minimum wage in 1967 was significantly better off than a worker in 2012. (Data: US Dept of Labor)

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 in North America and Western Europe to set limits on how much CEOs and company directors can earn. In fact, even today after the devastating 2008 global financial crisis and Great Recession that followed it, there are banks that pay giant bonuses to their top executives, even though their companies are still losing money. These banks were bailed out by the taxpayer to the tune of hundreds of billions of dollars.

Minimum wage in UKIn the UK, a person’s minimum wage depends on a number of factors including age and apprentice status. (Data: acas.org.uk)

According to etymonline.com, the term ‘wage’ first appeared in the English language with the meaning ‘a payment for services rendered, just desserts, reward’ in the thirteenth century in Britain. 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,’ which came from Frankish Wadja, which originated from Proto-Germanic Wadi.

What is a Living Wage?

Not to be confused with the national minimum wage, a living wage or often referred to as ‘the real living wage’ is often set at the discretion of the employer and is voluntary. It’s a wage that lets you lead a comfortable lifestyle.

The current UK Living wage is £8.49 an hour
The current London living wage is £9.75 an hour

Not all companies provide a living wage but they should because it’s been proven that staff get less sick when paid reasonably 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.

In most other languages, there is just one word for ‘wages’ and ‘salary’. Here is the term in other languages: salario (Spanish, Portuguese, Italian), salaire (French), führen (German), заработная плата (Russian), 賃金 (Japanese), 工资 (Chinese), أجرة (Arabic), upah (Indonesian), वेतन (Hindi), mshahara (Swahili), lön (Swedish), løn (Danish), and lønn (Norwegian).

Video – Wage vs. Salary

This Daily dose of English video explains in easy-to-understand language what the difference between wages and salary is.