Wages: payments to employees as a return for the provision of labour or human effort to the production process

Wage indexation: the fixation of wages based on inflation. Idea? Employees should receive wages in line with changes in the cost of living.
In essence, a rise in inflation increases cost of living so wages should be increased as well.

What are the two types of wage indexation?

• Full Wage Indexation: increasing wages according to inflation; 10% inflation = 10% wage rise
• Partial Wage Indexation: increasing wages less than inflation; 10% inflation = 7% wage rise

Minimum Wage: the lowest hourly/daily/monthly wage rate that an employer can legally pay to workers – the lowest wage at which workers may sell their labour. The minimum wage does not prevent employees to demand wages above it.

How are minimum wages set?

• Collective bargaining
• Governmental enactment of minimum wage levels

The government may seek to intervene in and modify markets, subject to changing economic and social conditions.
The two main approaches available to government focus around legislation and taxation.

Goods/Services purchased from income are determined by the general price level (inflation). As inflation increases, income earners can purchase fewer items of goods/services unless their wages rise as well.

• Trade Unions: labour movement organisations which represent workers and lobbies for the rights and wellbeing of employees
• Employer Federation: employers movement which represents employers and lobbies for the rights/wellbeing through the Labour Department
• The Labour Department

• Wages and salaries (factor payment for labour)
• Government transfer payments
• Income from business, trade, or profession
• Property income (rent, interest, dividends) and superannuation

To affect the growth and distribution of income (taxation)

• Redistribution of income to increase equity (fairer distribution) – progressive taxation and transfer payments
• Help create resolution over disputes over income between employees and employers. Determining wages in consultation with industrial relation commissions, trade unions, and business groups.
• To control and regulate cost-push inflation pressure. Wherein, increasing labour costs (or any of the factors of production) result in increased prices for goods/services

By law, government does not have authority to regulate prices/wages. It instead indirectly effects change by: (legislation)

• Regulating wages through appropriate method of taxation through the IRC
• Regulating prices of essential goods/service through the Price Surveillance Authority (ICCC)
• Enables reasonable wage increases in agreement with Trade Unions and Employees Federation – minimum wage increases and wage indexation policies

• Wage indexation is fixing or adjusting wages of employees according to the changes in the inflation rate
• Wages are adjusted to make sure the employees receive wages that match the cost of living
• Full wage indexation is increasing employee’s wage in line with or equal to the inflation rate
• Partial wage indexation is when the increase in employee’s wage is less than the inflation rate
• Minimum wage is the lowest wage rate for an hour, a day, or a month that is paid to the employee
• The goods/services purchased from the income are determined by the general price level.

Governments intervene in the income of employees to:

Redistribute income equally through progressive taxation and control cost push inflation

Solve problems of minimum wages between employers and employees

• Trade unions care for the rights and wellbeing of the employees
• Employer Federation is the organisation formed by the employers to serve their rights