Systems of Wage Payment
Pieces rate system: This is a system whereby a worker is paid according to the work done.e.g the quantity of output produced.
- More output is produced as workers will aim at producing more to earn more.
- With this system it is very easy to differentiate between a lazy and a hard working worker by comparing their output.
- This system does not require close supervision as each worker intends to work harder.
- It is easy for the employer and the employee to know the amount of payment.
- Quicker workers can earn more than those who are slow and lazy
- Workers may overwork themselves in order to earn more.
- It is not suitable for kinds of work which cannot be measured quantity wise.
- More careful workers who aim at producing high quality output may instead be paid less.
- It may result into fall in quantity due to a rush to produce more.
- It may result into accidents due to high speed among the workers in an effort to produce more.
Time rate system: This is a system of wage payment which is based on the hours of work by labourers which can be weekly, monthly etc.
- Workers are assured of regular payments.
- It is suitable for those types of works which cannot be measured quantitatively.
- It is easy to calculate the wage payment in relation to the working time.
- Workers will not rush their work which will result into high quality output.
- With this system wage rates can easily be adjusted to reflect different skills required to do the job.
- Output may be low because workers are assured of a regular payment
- With this system it is difficult to differentiate between a hard worker and a lazy worker.
- It requires close supervision to ensure that workers perform their duties.
- With this system it’s not easy to reward extra payment to a hard worker because it is difficult to measure output produced by each worker.
- The system encourages inefficiency because even the inefficient workers are paid at the end of the month.
Standard rate system: This is a system of wage payment where by all workers engage in similar works is paid the same.
- Bonus system
- Profit sharing system
It refers to a situation whereby labourers are paid different wages, despite the fact that they may be working in the same firm having the same education level etc.
Reasons for Wage Differential
- Difference in the level of education.
Highly educated are paid more than the less educated since they have more skills, more knowledge etc.
- Difference in the level of trust and responsibilities
Those who are in the position of more trust are paid more than those employees with low level of trust.
- Difference in the level of experience
More experienced workers are paid more than less experienced workers as they are assumed to be more knowledgeable, experienced and more efficient compared to less experienced workers.
- Difference in the riskiness of the job
Those workers which perform risky and dangerous jobs are paid more compared to other jobs. These dangerous occupations are such as miners. pilots etc.
- Difference in Gender
In some situation males are paid more than female, because males use more energy and most of the works are done by males and not all of them are done by female.
Difference in the level of strength
More energetic workers are paid more compared to less energetic workers. The more energetic a worker he/ she is can be able to perform more work and get more paid
- Racial factor.
At times wages differ among workers due to racial factors, where by the whites are paid more compared to the blacks.
- Differences in the strength of Trade Unions.
Workers who belong to strong trade unions are normally paid more compared to those who belong to weaker trade unions.
Theories of Wage Determination
- Subsistence theory of wages
This theory was presented by the physiography and was explained by a German economist Sallee. This theory may be known as The Iron Law of Wage
According to this theory, wages tend to settle at the level which is just sufficient to maintain the worker and his family at a minimum subsistence. If for some reason, wages are higher than this level, it is said that the workers would be encourage to marry, their number would increase by higher birth rate with the large supply of labour brings down the wage to the subsistence level.
If on the other hand, wages are below subsistence level marriages will be discouraged and ultimately labour supply will decrease, hence wages will rise and reach the subsistence level. This theory has been reflected because it is not realistic.
Criticisms of the theory.
- The law is applicable to less developed countries where wages are on low subsistence level unlike in more developed country.
- The theory only looks at increase in birth rates due to increase in wages neglecting other factors such as; early marriages.
- The term minimum subsistence is vague, because there is nothing like a fixed minimum subsistence as it keeps on changing.
- The theory is also unable to explain reasons for differences in wages.
- It is not always true that increase in wages is always accompanied by increase in the population size