Wage curve is a curve which represents a relationship between the rate of unemployment (plotted on the X-axis) and wage rate (represented on the Y-axis). Example. The wage curve in a particular mall will be lower when the rate of unemployment is high. It’s is a representative of relationship between the two variable at the local level i.e between local wages and local level of unemployment.
Initially, it was supposed that the there is a relationship between unemployment & wage rate, and also the unemployment in a particular area is directly related to the changes in the rate of wages in a particular area. This is contrary to what is explained by the wage curve according to which their exists an inverse relationship between the two.
Understanding the Wage Curve:
We know that the supply/number of labors is directly related to the wages, ie. the higher the organization pays the more is the number of hours of work the individual is ready to put in, but there is a twist in it in terms of the fact that the individual might not be ready to sacrifice an hour or more of his rest/leisure time (which is quite essential). The lower the rate of unemployment , fewer is the number of people available for a particular job and hence higher is the wage per employee.
Example. If a person can put in a maximum of 8 hours of work daily @ Rs.80/hr. If the same person is paid @ Rs. 100/hr, which is higher in terms of returns that the person gets after putting in the same amount off work. Therefore, more number of people will be required for getting the work done.
Implications: Wage Curve
1. It gives us an idea of how the rate of unemployment varies in different countries and also the reasons for the same.
2. It also explains why labors are willing to move from an area with low wage rate and high unemployment to an area with high wage rate and low unemployment.