Wage is usually used to mean a form of monetary compensation advanced to employees by the employers as an exchange or a settlement for work done by the former. From this definition, an employer and an employee tend to view the notion of wage differently. On one hand, employers tend to see wages as one of the cost variables of production while on the other hand; employees see it as a source of income. According to Cahuc and Postel-Vinay (2002), wages often paid to laborers make up at least 60% of the aggregate cost of producing the total supply of real production in an economy. Similarly, of the total income that an employee attains, close to 90% is made up by wages (Sappey, Burgess, Lyons & Buuitjens, 2009).Therefore, any decrease in wages benefits the employer as it means that the cost of producing will increase giving rise to a rise in the aggregate supply in the short-run. However, the shift in the level of wages puts the employee at a worse off state. As such, lowering wages implies that the level of income that he or she attains will lower resulting to a declining spending and saving ability or power. When the level of wages rises, it means that the production costs increases as the employer has to pay more to achieve the same level of outputs. To an employee, the rise in wages means a rise in income, which in turn implies an increasing spending and saving power (Sappey, Burgess, Lyons & Buuitjens, 2009).
Given the meaning of wages to each party, it follows that while an employer will bargain for the costs of production, the employee will bargain over his or her own income. The concept of bargaining with regard to the two often differ significantly. Within the context of employment, bargaining implies negotiating issues, which usually affects a given course. In this case, employer’s bargaining implies negotiating issues that often affect the cost of production such as wages. Among the issues that employers and employees are likely to bargain includes the statutory charges that are associated with employment, income tax payments, and automatically deducted income tax payments. The statutory charges include such aspects as social security, insurance contributions, and labor costs that relate to the employing of an individual (Sappey, Burgess, Lyons & Buuitjens, 2009). The law requires that an employer accounts for these charges when determining the level of wages that he or she will offer the employees. Therefore, the level of wages should be high enough to provide for these charges. Typically, an employer will bargain these charges in order to ensure that a higher wage, which means a high cost of production, is reached. The employee, on their part, will bargain these charges in a manner that maximizes the level of their income.
Whether the employer increases the level of wages or not, employees are often inclined to bargain the statutory charges down so they can have a higher income. In the short run, employees consider statutory charges as driving down their income. Another element that is subject to bargaining by both parties is the automatically deducted income tax payments. Both the employee and the employer will bargain the level of income tax payment. If the law sets a high income tax payment, the employee is disadvantaged. If the employer fails to increase the amount of wages to prevent any rise of the cost of production, it means that the amount of income on the part of the employee will lower. However, if the employer decides to raise the wages, the cost of production will increase. However, for the employee, the level of income might increase or remain constant. It may increase if the employer increases the wages at a rate higher than that of the stated income tax deduction (Sappey, Burgess, Lyons & Buuitjens, 2009). However, it may remain constant if the rate match. Thirdly are non-wage benefits such as holiday leave and sick leave. These too often have a potential effect on the cost of production and employee income level. Most benefits are often paid and this increases the level of income on the part of the employee. Therefore, the worker is likely to bargain these benefits upwards. Contrastingly, the employer will attempt to negotiate the benefits down as they often imply increasing cost of production. Besides the wages, he or she must incur the extra cost of providing those benefits.