In economic theory, wages refer to the price paid for labour. Wages consist of all payments that compensate individuals for time and effort spent in the production of economic goods and services. The payments include not only wages in the ordinary, narrow sense-the earnings, computed generally on an hourly, daily, weekly, or output basis, of manual and clerical workers-but also weekly, monthly, or annual salaries of professional and supervisory personnel; bonuses added to regular earnings; premiums for night or holiday work or for work exceeding stated norms of quantity and quality; fees and retainers for professional services; and that part of the income of business owners that compensates them for time devoted to business.

Wages are remuneration paid to labour in return for services rendered either under contract or independently.

Wages can be sub divided into the following two forms.

(a) Nominal wage (Money wage)

By 'nominal wage' is meant the total amount of money earned by a person during a certain period. For instance: you employ a servant and pay him Shs.2600 per month for the services he renders to you. The amount which is paid in terms of money only is named as nominal wages.       

(b) Real wage:-

This is the payment to labour in terms of the quantities of goods and services that can be purchased by the amount of wage. Real wages generally include money wages and other facilities, like free clothing, free housing, free accommodation, free electricity etc. If we are to judge the standard of living of the masses, it can be estimated not from the nominal wages of the workers but from then real wages.

In the words of Adam Smith, the labour is rich or poor, is well or ill-rewarded, in proportion to the real, not the nominal wages of the labour. If we are to estimate the real wages of a labour, the following factors are to be taken into consideration factors that influence the real wages:

(i) Purchasing Power of Money. The purchasing power of money does not remain the same. It continues fluctuating from time to time. When the prices of the commodities go up, the purchasing power of money falls and when the prices fall, the purchasing power of money rises. Real wages depend upon the purchasing power of money. If nominal wages are high and prices are low, then we can say that the real wages of the labour are high but in case the cost of living is high, then, the real wages will be low. Thus, we conclude that, other things remaining the same, the higher the cost of living, the lower the real wages and vice versa.

(ii) Opportunity of Extra Earning. If a person has an opportunity of earning extra income in a certain occupation, then his real wages will be higher than the one who does not have. For instance, a professor can increase his income by writing books, contributing articles of journals, newspaper, etc., but a superintendent working in an office does not have opportunity for supplementing his income. So his real wages will be low as compared to professor's income even if both are getting the same salary.

(iii) Nature of Work. In computing real wages, we have to take into consideration the nature of work also. If the work is pleasant and agreeable, then real wages will be high, even if the normal wages are low. For instance, a pilot getting UgShs. 50,000 per month. Another man a magistrate and is receiving Ug. Shs. 20,000 monthly. There is no doubt that pilot's nominal wage is higher but his duty is of such -a nature that his life is always in danger. On the other hand, the duty of the magistrate is pleasant and has a social status. So, we can say that the real wage of the magistrate is high because his work is pleasant while that of the pilot is low because his work is risky.  

(iv) Future Prospects. The prospects of success in the future also plays dominant role in determining the real wage of a person. In a certain occupation, the chance of future prospects are dark, then the real wage of that man who is working in such occupation is lower than the one who is getting low wages in a certain job but his chances of getting promotion in the future are certain and bright.

(v) Hours of Work. When we are to measure the real wages of two different persons earning the same amount, the number of working hours should also be taken into account. For example, if a worker receives UgShs.5,000 monthly by working four hours a day and the other 8 hours a day. The real wage of the former will be higher than the later.

(vi) Tenure of Services. Employments are of two types, permanent and seasonal. If a person is engaged in a work which is regular and permanent, then other things remaining the same, his real wages will be higher than the one who is working in a seasonal occupation.

(vii) Form of Payment. While determining the real wages of a labour, the form of payment should also be taken into consideration. If a labour is receiving UgShs.6,000 monthly and there is no extra payment in kind, such as clothing, food, shelter, etc., then his real wages will be lower than the one who earns UgShs.5,000 monthly and also receives additional facilities in kind.

(viii) Expenses of Trainings. Expenses of training is also one of the very important elements in determining the real wages of a labour. For instance, the nominal wages of two labourers are the same, but their period and the cost of training differ. One labour has spent 16 years of his life in getting education and has spent UgShs.10,000,000. The cost and the period of training of the other labour is UgShs.40,000,000 and two years only. It is quite evident that the real wages of the later are higher than that of the former.

(ix) Social Status. Real wages also depend upon social status. The money wages of a magistrate and a professor may be equal but the farmer's position is held in great social esteem in many countries. So. we can say [hat real wages of the magistrate are higher than the professor's in Pakistan.