wage

When you take a job, you and the employer agree on a number — say 20 dollars an hour, or a yearly salary. That number is the wage: the price paid for labour. From the worker's side it is income, the reward for giving up their time. From the employer's side it is a cost, the price of an input they buy in the factor market. The same payment is income to one person and an expense to the other.

Economists draw a few useful distinctions. A nominal wage is the wage measured in money — the dollars on your payslip. A real wage is that wage adjusted for prices, telling you what it can actually buy; if your pay rises 3 percent but prices rise 5 percent, your real wage has fallen even though your nominal wage went up. There is also the difference between a wage rate per hour and total earnings (rate times hours), and between the gross wage and the take-home pay left after taxes. In a competitive labour market, the wage settles where the supply of workers willing to work meets employers' demand for them — and that demand traces back to how much value each worker adds.

Wages are the single largest source of income for most households, so what drives them is one of the central questions of economics. Education and skill, the value of what you produce, bargaining power, discrimination, location, and luck all play a part. A persistent confusion is to think a wage measures how 'deserving' or hardworking someone is. In a market it mainly reflects supply, demand, and the value of output — which is why a brilliant poet may earn less than a mediocre stockbroker.