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Incomes & Wages


Identify the range of macro-economic issues currently impacting on the economy of Papua New Guinea and link appropriate
macro-economic management strategies to those issues

Course Overview

Identify the range of macro-economic issues currently impacting on the economy of Papua New Guinea and link appropriate
macro-economic management strategies to those issues.

Unit 12 Topic 4 Goals

  • Define wage indexation
  • Differentiate between full wage indexation and partial wage indexation
  • Define minimum wage
  • Identify the current minimum wage rate of Papua New Guinea
  • Describe the relation between prices and income
  • Identify the reasons why the government intervenes in altering the incomes

Course Content

6 Lessons 6h 40m

    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.

    Organisations that represent workers include:
    • 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
    What are the sources of income for households?
    • Wages and salaries (factor payment for labour)
    • Government transfer payments
    • Income from business, trade, or profession
    • Property income (rent, interest, dividends) and superannuation
    What are the reasons for government intervention in incomes:

    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