Labor wage rates - Monetizing human effort

Published by MBA Skool Team, Published on August 04, 2011

The human energy spent in organizations for production by means of physical work or mental work may be defined as labor. It is because of the effort and labor of the human resources that a company is able to produce goods for its business. And as a compensation for their skill and hard work, they laborers are paid wages. In business, wages are basically the salaries or money which is paid to the workforce at either rate per hour or day or week or month, or in some cases for the physical as well as the mental contribution. All this comes under the labor cost, which is added to the cost of production of the product. Wages are given to laborers in monetary terms but it’s necessary to understand various factors of production which contribute to wages.


Labor Wages

The most important aspect of deciding wages is the human factor. The laborers are paid wages for their contribution in terms of service. Laborers offer their service for a price and as long as they are given money in return, they would give their contribution. Another aspect is the personal likes and dislikes for work which determine the supply of workforce contribution. Factors like number of hours worked, working conditions, security of work etc also play a substantial role in determining the wage rates. There are few theories which help in understanding the relations between labor wages, cost of production, workplace flexibility and demand for labor.


The earliest theory is the subsistence theory which says that labor was a commodity sold and bought between employers and workers at a price. However, in the longer perspective, the cost of production would become similar to how cost of production determines values of commodities. According to this theory, there is a minimum level below which the wages given to laborers should not fall. No matter what the financial situation, a basic pay has to be given to the laborers irrespective of production, profit or market scenario. This is still prevalent in industries today as laborers have to be given minimum wages for their contribution.


However, no theory can practically judge the wage rates for labor. They can only be guidelines and frameworks which would help in understanding the wage concepts for practical implementation. Demand for labor is another essential which needs to be considered while determining wage rates. Also, wage rates must be decided with a room for improvement in the conditions either by economic progress or through a higher efficiency rate.


Other major factors which need to be considered while finalizing wage rates are regions, trades and persons. In real life, people working in the same industry in the same place are given different wages despite having the same basic requirements in life. Ideally all must be paid a same wage, but skill, knowledge, position of authority, experience etc demand for a higher wage rate.


Laborers form a core aspect in the production and success of any business. It is because of their contribution that other aspects of management and business flourish. There is no clear cut rule of appreciating human service and determining wage rates. Thus, monetizing human effort in terms of labor wages is a challenge for every organization.

The articles in this section have been submitted by our Authors. They have been reviewed & uploaded by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

If you are interested in writing articles for us, Submit Here

Share this Page on:
Facebook ShareTweetShare on Linkedin