Question

In: Economics

What are the two factors which determine wages? Why must both be present to earn the...

What are the two factors which determine wages? Why must both be present to earn the highest wages? 250 words or more

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Expert Solution


There are many factors that determine the wage rates in the market such as the cost of living, ability to pay, Bargaining power, Productivity, cost of training, prevailing market rates etc. But the main and important two factors that are very much required in the market which influences a lot on the wage rates are the Demand and the Supply.

The demand and supply are the two factors which will and has to be present in any market either to get the equilibrium or to determine the wage rates. Many things are dependant and determined by these two factors alone. Though, this is believed by the classical economists but to some extent it is the reality.This is also called as the market theory of wage determination. Several factors on the demand and supply side are there to influence the price of labor.

On the demand side the factors like the demand for the particular product or services, its price, profitability and productivity affect the wage rates. First of all there should be demand for the product because then only it will produced. The price of the product and the productivity should also be good then only the demand will increase and lastly when there is profit then only it will be produced more. And when the profits are more and more is produced definitely the wages will go high.

On the Supply side factors like state of economy, demographic factors, prestige of job, qualified numbers determine the wages rates. When the demographic and the geographic factors are in sync then the supply becomes easier, when supply takes place easily then definitely the cost will increase which helps in higher wages. Also if the state of the economy is well established then too supply will be smooth and easy and quick. All these collectively help in increasing the supply and thereby the wages also increases.


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