Wages and Salary are rewards for labour’s services. They are amount of money paid to labour for their involvement in production of goods and rendering of services.

Wages are rewards or amount of money paid to casual workers. They (casual workers) are group of people who work on temporary basis. They are paid on daily or weekly basis. Wages earners (casual workers) are only paid for the days they work; and they are not entitled to certain fringe benefits, like annual leave payment, Pension entitlement, etc.

Salary is a reward for or a specific amount of money paid to permanent staff on monthly basis. Deduction is not made from their earnings (salary) if they are absent from work. They are entitled to all fringe benefits, like annual leave payment, pension entitlement, etc.

Salary is a fixed cost and it is debited to profit and loss account. While wages are variable costs and they are debited to trading account.


Types of wages

  1. Nominal wages: Nominal wages refer to the total amount of money paid to a labourer at a particular period of time. Nominal wage, also called money wage, is the total amount of money paid to labour at a stated or stipulated period of time. It is measured in monetary terms, like N30 per hour.
  2. Real wages: Real wages refer to the total amount or quantity of goods and services the labour can use his money to buy. Real wage refers to the purchasing power of labour, like two baskets of rice per day.


Wage Rate

Wage rate may be defined as the rate at which labour is paid for the services it renders in production.


Types of wage rate

(a) Time rate system: The time rate system is the type in which wages paid to labour are based on the number of hours worked. Time rated wages apply to workers whose wages are paid on hourly, daily, forthnightly or monthly basis.


Situations where time rate system can be applied

  1. Where the quantity of work done is not easy to measure.
  2. Where the quality of work done is more important than the quantity.
  3. Where employees will require supervision of the employer to get the full value of their wages.
  4. Where certain jobs may not be done for a longer period of time due to their health implications.
  5. Where incentives to workers are not necessary.


(b) Piece rate system: The piece rate system is concerned with the wages paid to labour based on the work done. In this system, payment to workers is related to the work done or output. The output of the worker is measured and he is accordingly rewarded.


Situations where piece rate system is applied

  1. Where supervision may not be necessary.
  2. Where output can easily be measured.
  3. Where large scale production is expected.
  4. Where incentive to workers is encouraged.


Factors Responsible for Variation in Wages

The factors for the differences in wages are as follows:

  1. Differences in cost of training: Professions that are costly or expensive to execute in the course of training tend to attract higher wages than those with cheaper cost of training.
  2. Differences in period of training: Some professions attract longer periods of training, e.g. the medical profession, and therefore attract higher wages.
  3. Skill needed at work: Some professions that require special skill during training tend to have higher wages than those that do not require any skill.
  4. Activities of trade unions: Some trade unions determine what their members have to be paid, e.g. chartered accountants, and this tends to make them earn high wages.
  5. Forces of supply and demand: When the demand for a particular labour is higher than the supply, such labour tends to receive higher wages.
  6. Level of productivity: It is assumed that in an ideal situation, the more a worker becomes productive, the higher his wages will be and vice versa.
  7. Differences in hours of work: It is also assumed that in an ideal situation, the longer the number of hours worked, the higher the wages, especially when the piece rate system is used.
  8. Level of risk associated with a job: Certain jobs, e.g. piloting, petroleum engineering, etc. involve greater risks when in operation and therefore are associated with higher wages.
  9. Entry qualification: Certain profession requires tough qualification and lengthly years of training, e.g. medical doctor, lawyer, etc. which tend to attract higher wages while those with little or no entry qualifications tend to receive lower wages.
  10. Prestige associated with jobs: Certain jobs attract high prestige from the society, e.g. medicine, law, engineering, etc. and they therefore attract higher wages while those with low or no prestige receive low wages.


Determination of Wages

Wages can be determined through the following:

(a) the forces of demand and supply in a market economy.

(b) government activities and policies.

(c) the activities of trade unions.


(a) The forces of demand and supply in a market economy

The wages of labour in a market economy can be determined through the forces of demand and supply. In a competitive labour market, there are so many employers and unorganised employees resulting in a situation where a single employer or employee cannot influence the wage rate either by refusing to be employed or to employ. Wage rate in a competitive labour market can be determined in the following manner:

  1. When the supply of labour exceeds the demand, wage rate will fall.
  2. When the demand for labour exceeds the supply, wage rate will rise.
  3. When the demand for labour equals the supply, wage rate will be favourable to both the employer and the employee.


The determination of wages by demand and supply can be demonstrated by the graph below.




(b) Government activities and policies

Government institutions and wage commissions set up by the government help in determining wages, especially in the public services. In fixing wages, the government agency or wage commission takes the following factors into consideration.

  1. Cost of living: The higher the cost of living, the higher wages are likely to be. If workers spend so much to get the essentials of life, then there is need to pay workers higher wages to enable them meet up.
  2. Level of productivity: The greater the level of production in the country, the higher the wage rate.
  3. Type of occupation: The wage structure varies from one occupation to another. The wage structure for each category of labour is based on degree of scarcity of labour, the risks involved, etc. So various salary grade levels are fixed for different categories of labour in the civil service.


(c) The activities of trade unions

Definition of trade union

  1. An organization of workers formed mainly for the purpose of dealing collectively with their employer on matters concerning their employment, such as high remuneration, better conditions of service, greater job security, etc.
  2. An association of workers that protects the interest of their members and collectively bargains with their employer for higher remuneration, improved conditions of service, greater job security, etc.

Examples of trade unions are Academic Staff Union of Universities (ASUU), National Union of Petroleum and Natural Gas Workers (NUPENG), National Union of Road Transport Workers (NURTW), Nigerian Union of Banks, Insurance, and Financial Institutions Employees (NUBIFIE) and the bigger umbrella, the Nigerian Labour Congress (NLC).


Objectives of trade unions

  1. To secure good wages for members.
  2. To participate in policy formulation of their respective organisations.
  3. To secure employment for those members who have no jobs
  4. Trade unions also make it their responsibility to safeguard the interests of members.
  5. They also regulate the entry qualifications into the various professions.


Methods of conflict resolution between Trade Union and Management

The weapons at the disposal of trade union for resolving conflicts or trade dispute includes the following:-

  1. Reconciliation (further negotiation): Trade union often renews its vigour in preparation for further negotiation around the conference table as an orderly and peaceful procedure for resolving any deadlock between trade union and management. Such a reconciliation attempt may not initially involve a third party (an outsider).
  2. Eliciting public sympathy – lobbying: Some trade unions, at times, draw public sympathy by making them aware of their grievance vis-a-vis that of their management. This compels some notable personalities, like royal fathers, bishops, statesmen, social and human rights activists, etc. to persuade their employer for consent. Publishing their grievances on the national dailies may achieve this aim.
  3. Overtime ban: Workers may not participate in overtime work. This reduces output; and it has adverse effects during period of high demand.
  4. Strike threat: Some trade unions issue ultimatum of three days, a week, etc within which employers must comply with their request else they would embark on strike or any violent action.
  5. Slow down (go-slow strike): If all peaceful attempts and strike threat fail to yield the desired result, the union may embark on slowdown or go-slow strike. It involves reducing the speed with which workers perform their jobs. This weapon reduces output and thereby raising cost of the firm.
  6. Picket lines: A trade union may compel its members (employees) to stay at the entrance (gate) of the company’s premises without going into the premises.
  7. Strike: The workers may resort to actual strike if the conflict can’t be resolved through the above efforts. “A strike is a stoppage of work collectively embarked upon by all workers of an institution or members of a Trade Union”. It is an effective instrument used by trade union to pressurize employers to concede to workers’ demands. It lingers on until a side concedes to the other.
  8. Peaceful demonstration: Workers may embark on peaceful demonstration. They march round the streets with large cards upon which their grievances are boldly written in order to drum home their demand. At times, they may proceed to NTA premises to make their grievances known to the public.
  9. Involving other trade unions: The trade union may solicit the support of allied trade unions, and eventually involve them in a general strike in an attempt to compel employer to instantly comply with their demands.
  10. Violent demonstration: Some trade unions may embark on violent demonstration as a drastic measure in showing their discontent with the prevailing situation – employer’s act of exploitation and neglect.
  11. Mediation and arbitration: Mediation occurs when the parties appear before an impartial commission with their grievances. And after a thorough investigation, it therefore makes suggestions for resolving the conflict. However, the commission verdict is not binding on the parties. And if one of the parties falls to abide with it, they may resort to arbitration. Arbitration may be voluntary or compulsory. It is voluntary when both parties agree for a third party to resolve their differences. And it is compulsory if the government intervenes to compel them to submit their grievances to an impartial third party for adjudication whose verdict (decision) is binding on both parties.


Advantages of trade union

  1. Greater benefits and obedience: Union’s collective bargaining with management compels the latter to accede to the former demands of greater benefits than before. And workers are therefore at relative peace as they are on higher level of income and better conditions of service. Thus they become more dedicated to their jobs, and they always tend to comply with all company’s rules and regulations.
  2. Industrial harmony: The complementary role of trade union in labour management relation ensures industrial harmony; thus it enables both parties (employer and employees) to work together amicably.
  3. Contractual right: Trade union enables members to have contractual right to greater benefits. As the union enforces employer to enter into a long- term contract regarding conditions of work, workers are automatically entitled to specified rights without individual worker daily soliciting for them.
  4. Enhances unity: Labour union enhances unity among workers; and it makes them to act unanimously – to speak with one effective voice.
  5. Enlightens employees: Trade Union enlightens employees about their individual rights; and it motivates them towards attainment of these entitlements and other fringe benefits.
  6. Protects workers’ interest: It continuously protects workers’ interest. especially during a period of conflict resolution (during strike) when management constantly threatens workers or the executive with summary dismissal. .
  7. Greater productivity: Through collective bargaining process, trade union enables workers or members to be entitled to higher remunerations. This motivates them to work harder and achieve greater height in terms of production output. That is, it causes a rise in labour productively as it enables them to have higher pay and better conditions of service.


Disadvantages of trade union

  1. Cost-push inflation: Trade Union has been criticized for causing cost push inflation for successfully bargaining for higher wages. The increase in salaries pushes up cost in firms and it can only be covered through increase in prices.
  2. Monthly dues: It reduced workers’ pay through monthly dues collected from them. The higher the dues the lower the workers’ net pay.
  3. Miscellaneous limitations: Many people have levelled criticism against Trade Union for its involvement in the following:.


  • It enforces union recognition upon firms.
  • It often instigates workers to embark on nationwide strike which causes a lot of inconveniences to the public. This is the major reason why many governments tend to curtail union activities.
  • Some Union’ leaders at times indulge (involve) in corrupt behaviour and undemocratic practices.


Employers’ association

Employers’ Association is a combination of employers formed primarily for collective negotiation with trade union(s) as well as with government.

A good example of employers association is that of the Nigerian Employer’s Consultative Association (NECA) formed in 1957. While trade unions are usually interested in negotiations about wage increases and improving the working conditions of workers, employers’ associations are normally interested in discussing ways of increasing productivity. Through collective bargaining on these matters, mutual agreements are reached by both the trade union and employers’ association.


Its functions

  1. It collectively negotiates with trade union(s) for the acceptance of employers directives.
  2. It constantly discusses with government (appropriate ministry, like ministry of labour, trade, industry, mining and power) all matters affecting their trade.
  3. It relentlessly promotes their trade in the society.
  4. It maintains cordial relationship with employees, governments as well as ensuring industrial harmony in a country.
  5. It pressurized and/or persuades government to enact (make) laws and formulate policies (fiscal, monetary, commercial and labour policies) favourable to their trade or organizations.
  6. It takes unanimous action and applies necessary machinery (measures) in conflict resolution especially those involving their employees and the government.


Weapons that can be used by employers’ association during a trade dispute

  1. Restriction: Prior to conflict, management may overtly (openly) restrict workers, especially new employees from actively participating in unionism.
  2. Peaceful negotiation – collective bargaining: They collectively bargain with trade union in order to resolve the conflict (disagreement) amicably (peacefully). TO
  3. Dismissal threat: Employers may intimidate employees or union’s executives with summary dismissal for the adoption of ‘slow-down tactic or strike action for pressurizing management to yield to their demands.
  4. Lockout: The management may institute a lockout measure (temporary close down of a place of work without pay) until the conflict is resolved.
  5. Strike breakers: An employer (a company) may hire workers to operate the plant during strike period.
  6. Black list: They compile the list of workers who are actively involved in the strike or violent demonstration for summary dismissal (termination).
  7. Injunction: Employers’ Association may oblige a court judge to issue an injunction (a court order which restrain a person or a group of persons from specified action) to restrain workers from embarking on slow down action, strike or violent demonstration.
  8. Summary dismissal: All affected staff may be instantly dismissed and injected from staff quarter. And management may issue an ultimatum of specific days within which the workers should re-apply under stated conditions.”
  9. Reconciliation and arbitration panel: Employers’ Association may seek outsiders”(government, industrial diplomats. etc.) intervention in resolving the conflict. It obliges an independent body or the government to set up an impartial reconciliatory panel to proffer solution to the crisis.


Factors which Influence the Level of Wages

  1. Productivity: The higher the level of production, the higher the level of wages and salaries, and the lower the level of production, the lower the level of wages.
  2. Inflation: Inflation can induce employees to demand for increase in the level of wages.
  3. Rising income: The rising incomes in key sectors of the economy (e.g. the public sector) can lead to a general increase in wage limits. For example, the federal government raised the minimum salary of federal workers to N7,500 and all other employers too had to adjust wages and salaries upwards.
  4. Demand for and supply of labour: If the aggregate demand for labour is low, there is the tendency for the level of wages to fall but if the aggregate demand for labour is high, the level of wages would rise.
  5. Effectiveness of trade unions: Activities of trade unions through bargaining power can lead to increased wage level.
  6. Technical changes: Technical changes such as improved and more effective process of production will lead to increase in productivity and ultimately higher wage rates.
  7. Quality of labour: The quality of labour in terms of skills or training determines the level of wages or salary attracted. Highly educated and professional workers attract higher level of wages than unskilled workers.
  8. Condition of the economy: When the economy is buoyant, workers enjoy a high level of wages, but when the economy is in recession, wages and salary levels fall.

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