Nominal income and its reflection in wages

The market principle of income generation differs significantly from the administrative one. In the simplest terms, incomes in a market economy are understood as means expressed in cash or in kind, coming to the full disposal of an individual for any fixed or specified period.

Based on this statement, you can disclose the differences between the ways of generating income. The main one is that in the market mechanism not only labor costs are taken into account, but also the effectiveness of participation in market competition.

It is considered fair that such a situation occurs when income comes not only from work activities, but also from competitive advantages and profit derived from them. Indirectly this factor considerably extends and the list of the incomes which this or that subject can receive.

Modern science investigates the principles and mechanisms of income generation on the basis of operating factors of production: labor, land, capital, entrepreneurial talent. Labor, as a rule, brings income in the form of wages, capital - in the form of interest, land - in the form of rent.

When using the functional approach, the reward and its size depend on the effectiveness of the use of the factors of production themselves.

For a general assessment of the nature, level and dynamics of income, classification methods are applied, which, for all differences among themselves, distinguish as traditional the following types: disposable incomes, nominal and real incomes.

Disposable income is used, as a rule, for personal consumption and represents the amount received from deducting the amount of taxes from the total nominal income.

Real income is the amount of goods and services that a particular subject can purchase for a certain period, depending on the current price situation in the consumer market.

And, finally, the nominal income is formed from all the money received by someone for the entire established period.

Most of the incomes are of labor origin, and there is not much difference between the worker at the machine tool at the factory or the company manager, or broker on the stock exchange. The problem is that it is quite difficult to single out the labor component in general, sometimes it is impossible, therefore its parameters are often estimated, conditional. The reason is that in some types of activity, unpredictable factors influence the amount of income, what are the risks, luck, conjuncture dynamics, and so on.

In most cases, the nominal income is formed, first of all, at the expense of wages. For example, in some countries, its share in national income rises to 75% of its total value.

Just as the nominal income and the real are distinguished, the types of salaries are also distinguished: nominal and real. The first of these represents the entire amount of money that is paid to the employee for his direct labor in the enterprise. Its magnitude traditionally judges the well-being of a person and his potential opportunities. At the same time, its magnitude can not be definitely said about the level of consumption. To reflect this indicator is the real salary, which is defined as a certain set of real goods and services that a person can afford to buy in the consumer market, taking into account its dynamics, conjuncture and the nature of the instant state. This establishes a regular, directly proportional dependence of real wages on the magnitude of the nominal income and its inversely proportional dependence on the level of market prices for goods and services.

In addition, the amount of wages is also determined by such "intangible" factors as the level of professionalism, the nature of the work itself, based on its emotional and psychological tension, the degree of development of the innovative potential of the enterprise and its implementation in each workplace, and ultimately - the quality of the work. Consequently, the reflection of nominal income in the wages of employees is of an indirect and calculated nature.