Equilibrium wage rate
Also called: Wage determination · Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Class 12, Ch 5 "Market Equilibrium"
Meaning
The equilibrium wage rate is the wage at which the demand curve for labour and the supply curve of labour cross. At this wage, the hours households want to work equal the hours firms want to hire. If the wage is above this level, more people want work than firms want to hire. If it is below, firms cannot find enough workers, and the wage tends to rise.
Example
In a town, suppose firms want 1,000 hours of work a day at ₹150 an hour, and households offer exactly 1,000 hours at that wage. Then ₹150 is the equilibrium wage. If a helper at Ratna's restaurant quits in a tight local market, she may need to offer slightly more than the going wage to attract a replacement.
Don't confuse with
- Minimum wage: this is a wage floor set by the government, not by the market. It can be set above the equilibrium wage.
Related concepts
- Derived demand
- Demand for labour
- Marginal revenue product of labour
- Value of marginal product of labour
- Labour market
- Supply of labour
- Income-leisure trade-off
- Backward-bending labour supply curve
- Wage rate