The policy of incomes and payment for labor

                      Content

Introduction…………………………………………………………………..…….3

1. Income, sources of their formation and the life level

1.1. The cost of labor force and its structure ……………………….……….5

1.2. The price of labor force…………………………………………………7

1.3. Income of population and sources of their formation………………..…8

1.4. The concept and indicators of living standards………………………18

2. The base of payment of work

2.1. Wage……………………………………………………………….…22

2.2. Minimum wage………………………………………………………26

          2.3. State regulation of wage……………………………………………….27

3. Tariff system and its purpose
1. Tariff rate of employee……………………………………………..29
2. Rate networks, their role in the wage………………………………30
3. Directory of professional qualification of workers and its

application…………………………………………………………………32

4. Bonuses and allowances…………………………………………….40
4. Systems and forms of payment of work in agrarian sector…..……………42

     Conclusion………………………………………………………………….46

     Literature…………………………………………………………………..48

                   Introduction

     The human by his nature is essence social. He lives among the other people, creating to himself and his close people more suitable conditions of existence. So is formed world of the economy. The history of the development mankind - a history of the development of the economic relations, including the field of public division of labor. "All belongings to labor" - said Ekklesiast. Not accidentally exactly about labor most amount proverbs formed beside folk of the world and sayings, reflecting culture, traditions and experience. Not accidentally relations of the labor have found entailment in many classical masterpieces.

     The economy of the labor as science studies the economic regularities in the field of labor relations, including specific forms of the manifestation to essence of the labor, such, as employment, organization, payment, efficiency and others. Economy of the labor, being economic science, explains the processes of the agreements and coordination in society. The knowledge of the basis of economy of the labor will allow the specialist abstracted and argumentically approach of study occurring event, explain their driving power and value importance.

     The topic of my course paper is the policy of incomes and payment for labor. 

     The policy of income in Ukraine is directed on providing the welfare of population, the constant increasing of the life level. The level of life is one of the most important indicators, that are characterized the achievement of nation, its status in the world rating.

     Incomes play the important role in the life of people as the main source of needs (interest) satisfaction. The policy of incomes is a part of social policy (or issue of internal policy of the country) and directed to the regulation of relationships in society in the income sphere of different social groups of population and for systematic support o the some level of welfare. Policy of income as a social policy in whole closely connected with concrete historical stage of country development and depends from the state of economy and relations that are formed in it.

     In other words the base of population life is the presence of good job and worthy wage, the possibility of using of guaranteed qualitative services.

     The main aim of my course work is the theoretical research of the question “income” and particularities of income forming of population.

     This aim stipulated the necessity of studying such questions:

1. Income and sources of their formation and life level
2. The base of payment of work
3. Tariff system
4. Systems and forms of payment of work in agrarian sector

     The subject of course paper is the research of the particularities of income forming in market economy, the methods, systems and forms of payment for labor.

1. Income, sources of their formation and the life level

     1.1.The cost of labor and its structure

     One of the important elements of a market economic system - hired employment. Labor force of employees in the labor market is a commodity that has value.

     Cost of labor force is a set of business expenses related to labor and its reproduction. It is the volume of goods necessary to ensure the normal life of human, ie to maintain its efficiency, vocational qualification training, maintenance of family and parenting, spiritual development, etc.

     At the cost of labor also affect the results of the owner of the working labor force. The cost of labor in the market forms through a comparison of performance, utility of work with the costs of reproduction of labor. It is established at a level that coordinates marginal productivity, ie the value of labor services for the consumer-entrepreneur with expenses needed for the reproduction of labor.

     On the value of labor costs affect certain factors. Some increase it, others – reduce.

     By the factors that increase the cost of labor is:

• expanding needs for new goods and services depending on the economic development of society;
•   increasing spending on housing, transportation costs;
•   Increasing the intensity of labor of employees, increasing the psychological pressure, which requires increasingly vital funds spent to restore the physical, moral and nerve force.

     Reducing the cost of living means, that are  necessary to reproduce labor predetermined by increasing productivity of labor and impact on reducing labor costs.

     The experience of countries with developed market economies shows that the cost of labor tends to increase. This is because the growth rate of labor costs through inclusion the cost of new goods and services significantly higher than the rate of decline by reducing the cost of consumption under the influence of increasing productivity.

     The structure of labor costs includes:

• directly to wages (salary rate, salary, bonus payments, allowances and bonuses);
• natural benefits (food, housing expenses, etc.) provided to employees entrepreneurs;
• costs of employers to social insurance. Statutory contributions to social security (old age due to disability, sickness, maternity, industrial injury, unemployment and in the form of family assistance). Voluntary or contractual (based on collective agreements) to the system of social security and private insurance.
• direct payments to workers in the absence from work through illness, accident, etc.. Cost of medical and sanitary services. Output support (payment at the end of the term of employment contract);
• the costs of training and staff, professional orientation and selection of staff;
• the costs of welfare services (canteens and other establishments catering to the business, cultural services and similar services);
• taxes, which are considered as costs for labor (for payroll, revenue).

     Cumulative life means which are necessary to reproduce the labor force in monetary terms, determines the price of labor.

     Depending on the state of the labor market price of labor force may deviate from its value. 
 
 
 
 

     1.2.The price of labor force

     The price of labor force above all depends on market labor supply and demand of labor. Conjuncture can vary, causing a corresponding fluctuation in price.

     Now the demand for labor in countries with market economies are less of its proposal, ie there is always unemployment. In this regard, even during the current business conditions the presence of unemployed restraint requirements of employed workers to improve conditions for the sale of their services. At a time when unemployment in developed countries has become chronic, the law of supply and demand actually works in the presence of constant excess of supply over demand of labor. This excess also varies depending on the business cycle situation.

     The price of labor is regulated and controlled by the state and trade unions. A certain laws, labor (tariff) agreements and other trade unions and employers are created. In general agreement states a minimum price of labor, which allows normal existence. In connection with changes of living conditions, work, production.

     The quality of labor force also affects on its price. The higher the educational level of the employee, the higher quality of labor, and hence the price tag.

     1.3. Income and sources of their formation

     Cost of labor is a basis for all of the system of public work.

     Income policy, that realized by society, is an important component of overall socio-economic policies, as indicators of income are the characteristics of life and economic characteristics at the same time.

     Income of population – an instrument for determining of the welfare level of society. Market economy, directing the population to improve their welfare, primarily due to labor activity, initiative and entrepreneurship, along with maintaining of the social unprotected groups, needs government guarantees to ensure consumption for all citizens.

     Income - a combination of funds and expenditure in physical terms for the maintenance of physical, moral, economic and intellectual conditions, which are necessary for human.

     There are money and natural income. Formation of income is through payment of workers, payment of social funds (social transfers), business income, income from property, income from personal subsidiary farms and self-employment, other income (alimony, fees, charity, etc.)

     Payment of labor - a reward for the work and  also vacation pay, holidays and other no worked  time, according to labor laws and collective agreements. In addition to this revenue include stimulating bonuses and extra charges, bonuses and one-time incentive payments, compensation payments related to working hours and working conditions, etc.. Wage rate, regularity of payment most determines to the level of living, especially the parts with low incomes. Timely of payment of wages - one of the most important factors of socio-political situation in Ukraine. (table 1.1)

                                        Table 1.1.

The structure of Ukrainian population income (1992-2001), % 

     To social transfers include pensions, social assistance, scholarships, insurance compensation, reimbursement disabled, damages repressed citizens.

     This income is formed by part of the profit that remains to the entrepreneur after the payment of interest on the loan and is fully dependent on the efficiency of management.

     The level of income and wages of persons hired labor, associated with small businesses, higher than in the average one for the national economy or industry.

     NGOs, especially small and medium ones,  operate in the market, providing employment of citizens without the financial participation of the state. But there are some problems associated with the formation of income, wages, development of social and labor relations.

     Particularities of income of persons employed by individual work and small business are:

• instability of income, as this business is going at own risk;
• some  part of profits is used for personal consumption, some can be used for investment and expansion of business, if there is a possibility of selling products or services rendered;
• often no social protection (not paid by medical certificate, holidays, there isn’t often execution to work, no deductions are made to off-budget funds);
• Problems of working conditions, its intensity resolved, usually without regard to current norms.

     Income from the property includes:

• interest on deposits by investors of credit institutions, the State of Ukraine and External-economic Bank;
• payment of income for government and others securities by the State Bank and credit institutions;
• advance compensation for deposits of citizens;
• income from the sale of property on the secondary housing market.

     Further development of revenues from the acquisition of means of production into private ownership and management of individual work.

     In the modern conditions in our country there is an additional source of income of workers employed in social production, it is - a profit. With net profits realized the following types of income as income from investments, innovation, dividends, profits of monopolies, social payments and other benefits.

     Distinguish nominal and real incomes.

     Nominal incomes - is the counted value of payments and in kind. Real income - is nominal income, adjusted for price changes and tariffs for services. The consumer price index affects the purchasing power of nominal income of population:

        p_r=p_n/I_p            (1.1)

     Where p  - is real income

                 P   -  is nominal income

                 I  - is consumer price index.

     Nominal and real incomes, also the size and dynamics of the main income of certain population groups, such as salaries, pensions and scholarships, and provide first notion about level of life.

     For the characteristic of population welfare, total income has a great importance of total population, families, separate individual, growth of what in conditions of constant prices and taxes (or their smaller increase compared with the increase of income) shows of  improvement opportunities of satisfied needs.

     Total income includes all types of monetary incomes and the cost of natural income received from personal subsidiary economy and used for personal (household) consumption. In addition, the total revenue includes the cost of free services that are received from the state costs and local budgets and funds of enterprises (health services, education, subsidized housing, transportation, meals, etc.)

     Money and total incomes are divided into general and clear.

     General include all incomes and calculated before taxes and mandatory payments.

     Clean income - a result re-distribution processes. These are those incomes that remain after the implementation of these payments.

     Clean incomes are adjusted taking into account the natural social transfers. Adjusted clean incomes include clean income and balance of natural transfers. To incomes of population also includes funds that have taken in his debt.  
Final income includes adjusted clean incomes and net public debts.  (table 1.2.)

     More and more importance today is the definition of income of households, needed for address help to the population, rational taxation.

     Household - one of the subjects of economic activity, which provides economy by resources, especially labor and money, and uses the funds for the life of people. Often the number of household members coincides to family. Family - a related persons living together and are keeping house. However, in some cases a household may consist of several families as well as hired labor. 

     Table 1.2.

     Structure of total income of population 

     Budget of the family consists of two parts - a profitable and expenditure items. Income and expenditure of families are influenced by factors, caused by the type of family, which in turn depends on the numerical and socio-demographic composition, the ratio of employees and dependents, etc., the character  of employment, income level, providing housing, cultural and household items of , residence, nature of the settlement, the district of residence and so on.

     In the structure of total family income sources ( as well as personal, and the whole population) in recent years, certain changes took place. Share of income in the form of wages, which is the main part of total income of families tend to decrease, increasing the share of income from personal subsidiary farms, the shares of other sources also tends to increase. The structure of aggregate income in state policy, directed on, that in the conditions of a market economy  every working                      person will be  responsible for their financial well-being.

              Using of aggregate income, which is including in the family budget, realized by the following areas:

• consumer expenses;
• Taxes, fees, charges;
• others costs;
• accumulation.

     In the process of realization of income, their part is used for consumption of material goods, some - on consumption of services. On the structure of consumption affects not only the growth of income, but also changes in the structure of the population, increase its educational and cultural level.

     I decided to show the example of structure of consumer expenses of population by information of selective inspection of households (1992-2001).

     Table 1.3.

     Structure of consumer expenses of population 

     So from this table we see that expenses for products for feeding are increasing, reduction for non nutrition products and increasing a payment for services, this testify that population are getting poorer.

     Depending on the sources of generation incomes can be earn and non-earned. Earned income - is income that the employee receives as a result of their economic activities as paid work force or in the case of self-employment. income represents income from activities conducted with deviation from the state law, rules of morality and behavior of citizens. In modern conditions, a significant  part of income is hidden. They related the shadow economy, which is represented as a hidden economic activities. It include:

• types of economic activities that are not illegal business, but  income is hidden or reduced there, that is not showing some completed work , employing people without correct documents, reducing the salary for avoiding the taxes, transfers and other liabilities;
• informal economic activities that belong to legitimate activities or keeping by unincorporated enterprises, ie enterprises owned to individuals, households that are not registered as individuals, conducting economic activity;
• illegal activities, covering types of illegal production and services and is under criminal responsibility (production and sale of drugs, contraband).

     In addition, the hidden income includes income of those people who conducts unregistered individual entrepreneurial activity (income from production of sales of personal household plots, sale of goods by private individuals in the marketplaces, from services in building sphere by informal brigades, juridical services, repair of clothing, footwear, household equipment, personal services in the field of education and culture, etc.).

     Depending on the cycles of human vital activity there are incomes that are received:

• before  participation in the work (before working age);
• from the participation in the labor, business, social activities;
• temporary not working persons (unemployed, migrants, etc.);
• after the ending of work activity (pensioners).

     Differentiation of income

     Differentiation of income is determined by level of development of productive forces and social relations, depends from the economic, demographic and social factors. Differentiation can be demonstrated through the ratio of financial provision levels - the most 10% of the most secured groups of population and 10% least secured groups.

     One of the indexes of differentiation by the level of income in the socio-economic statistics is the index of income concentration or Gini coefficient, which reflects the character of distribution of the total amount of income between different groups of population. The value might vary from 0 to 1. For uniform distribution of income coefficient is close to 0. The higher rate, that is closer to 1, the irregular distributed income in society.

     The basis of Gini coefficient, which is calculated using the Lorens curve is the idea that extreme positions in the income distribution or wealth between groups of people are egalitarian (everyone who participates in the distribution receive equal shares) and anti-egalitarian (a participant receives the distribution of all goods). In the first case we have full equality, in the second - the absolute inequality in the distribution.

     Calculation of Gini coefficient is realized on the basis of information about  the distribution of households (population) by the level of average income per household (member of household). The numbers of persons who receive income, divided into five equal quintal groups and determine what share of income has each group of households (population). Then by received results being obtained Lorenz curve (a graphic level of concentration of the phenomenon).

     To show the Lorenz curve on the coordinate axes of the interest scale from 0 to 100 deposited cumulative (accumulated) results of distributions: the horizontal axis – quintile of persons who receive income, on the vertical – quintile of received income.

     For uniform distribution of income every 20 percent population would have a fifth part of all income of society. On the graph it is shown as diagonal of square and is a line of uniform distribution. With uneven distribution «line of concentration» is a concave downward curve. The more the Lorenz curve deviation from the diagonal of square, the more uneven distributed income in society. Gini coefficient is a ratio between area of segment created by Lorenz curve and the line of uniform distribution to the triangle area below the line of uniform distribution.

                Graph 1.1.

   Income

      
             Population sorted in order of increasing income

       The line of uniform distribution 

       The line of virtual distribution 

     Fig. 1.1. The Lorenz curve

     Gini coefficient reveals the average difference in income between two recipients. For example, if the Gini coefficient is 0.2, this means that the average difference between income of recipients who belong to this aggregate is 40% of the aggregate income.

     Size of income and the difference between them caused by the influence of these factors:

• socio-political factors;
• Socio-demographic (sex, age, availability of talent and abilities, etc.);
• socio-professional (career, profession, education, qualifications, experience, etc.);
• social status (occupied or unoccupied person by socially useful activities, child, youth, that learning, employees, property owner, businessman, farmer, retired, disabled, etc.);
• socio-economic (the type of classes or activities, production, labor conditions, etc.);
• socio-geographical (natural and climatic features of residency, density and nature of resettlement, national).

     In addition, on the formation of income, their size influence leveling and differentiate factors.

     Leveling factors – putting together the family earnings, pensions of retirees living in the family and make their pensions to the family budget, helping that members of the family receive.

     Differentiate – the presence of the employment members of family, their number in the family, the ratio of employment and unemployment members of family.  
 
 
 
 
 
 
 
 

     1.4. The concept and indicators of living standards

     Quality of life - a socio-economic category, which reflects the degree of development and satisfaction the physical, spiritual and social needs of the population and conditions in society for development and satisfaction these needs.

     Structure of the matter of this question can be submitted in the form of complex needs and resources for their satisfaction. Persons’ needs are different. In this regard and different set of needs of each person. To determine the degree of satisfaction the actual consumption of goods and services correlates to minimal and rational standards of consumption.

     Factors that influence on the needs and level of life:

• the level of development of production and sphere of services
• science-technical progress
• cultural-educational level of population
• other factors

     According to the conventions of International Labor Organization (ILO), each person has the right to such a standard of living (including food, clothing, shelter, medical care, social services), which is necessary for the health and welfare of himself and his family, also the right of security in the event of unemployment, disability, etc.

     Increased life level promotes better quality of life, the conditions of human existence.

     Quality of life is characterized by lever of consumption of consumer goods and services and includes the social results of economic and political development, namely: average the life duration, the level of diseases, conditions and labor protection, social protection of population, improving of social environment, human rights.

     According to ILO recommendations the life level such indicators are showing: the volume of fund consumption per one person, real income, life expectancy, education, amount of consumption of products in physical terms, housing, utilities and social services, transport and communication; the health security and social insurance. Based on international standards it’s should be also considered: employment and working conditions, the existing social security, demographic, environmental, household goods, etc.. In addition, it’s have to take into attention the negative socio-economic phenomena such as inflation, unemployment, poverty, crime, discrimination in its various manifestations.

     In the world practice to describe the level of life is used such integral indicator as the Human Development Index, which includes three indicators: national or gross domestic product (GDP), life expectancy, level of education. These values correspond to the highest international levels of these indicators.

     National income or gross domestic product (GDP) is calculated in the so-called dollar purchasing power parity (PPP), life - in years, level of education - years of education and literacy of the adult population - in a percentage.

     Human Development Index is a simple calculation, flexible, statistical availability, but it does not fully cover the living conditions of all major components of life. Therefore, for calculating the integral index of living standards should determine indices of its components in the per capita: food (for its calorie and protein content), fund of the household (in comparable prices), housing (area in the light of benefits), health and health care (for the dynamics of life expectancy, mortality rates, spending on health), education and culture (the number of training places and the cost of education and culture), services (in comparable prices), etc.. The main indicator is the improvement of living standards is to increase life expectancy.

     Life level depends on the economic potential and in considerable extent is determined by size of GDP and the structure of its use. The source of raising living standards is the growth of national income, which is a part of total social product, after deduction of used in the production means of labor and material costs, the newly created value.

     The size and dynamics of national income depends on many factors such as productivity, employment, industrial structure, investments, the level of social services, etc..

     National income divided by the accumulation fund and fund of consumption.

Fund of accumulation – is a part of national income that is used on extended reproduction, increasing non-productive funds, and also creation of state reserves and stocks. By the second part of the national income a fund of consumption, which is used for satisfaction of the and also on the maintenance of non-productive spheres. The source is a necessary product and part of the additional product.

     Further development of society is accompanied by rising real wages and incomes, improving of the quality of goods and services etc. As the increasing of consumption fund has some boundaries, it’s necessary to provide the optimal correlation between consumption and accumulation funds, for providing as high and stable speed of economic development as and rising the level of life.

     Indicators of living conditions of population are getting much worse due to growing inflationary trends, which is reflected in the accelerated dynamics of prices on consumer goods and services, the ratio of nominal and real wages. Rising prices for consumer goods and services leads to a significant slowdown in nominal wage growth and falling of real wages.

     For evaluation of changes in living standards define the cost of living index, which rely on a set of goods and services for different socio-demographic groups and for the minimum set:

            I=P₁*g₁/P₀*          (1.2.)

     Where P₀ and P₁ - the price of purchase accordingly to the basic and current periods;

     g₁ and g₀ - volume purchase of basis and current periods.

     For the characteristics of life level in domestic and foreign practices used indicators of poverty: absolute and relative.

     For absolute poverty, the poor are part of households that can not provide themselves by a necessary amount of welfares, absolutely necessary for saving health and maintaining a moderately active working life. With relative poverty, the poor are part of households that have low incomes.

     The efficiency of labor to some extent determined by the current system of salary. Wages as a socio-economic category, on the one hand, is the main source of income, so its value is largely characterized the level of welfare of all members of society. On the other hand, its right organization attracted workers to improve production efficiency, and therefore directly affects the rate and scales of socio-economic development of the country.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2. The base of payment of work
1. Wage

     Wage as an element of labor market is the price of labor force and expenses item for the production, which are included in the cost of production, works (services) on a separate enterprise.

     While the definition of wages as the price of labor it’s necessary to take into consideration a single payment, the criterion of which is the real cost of employee life and his family. As the price of labor, wage is formed in a labor market and is external relatively foreign company.

     As an element price of production wage should be determined by part of the cost of established enterprises. During the forming the part of wage it’s should not be prevented the refund of surplus labor costs and provide its increase only in connection with the growing number of launched products, more efficient using of resources and increase of productivity.

     Wage is the most effective tool for the activation of human factors and using of labor capacity.

     As international experience affirms cardinal shifts in the technical equipment of production, structure and functions of workers, introducing new forms of work organization have led to that the basic purpose of economic policies and financial incentives of modern companies and firms was not the achievement of quantitative indicators of production and quality production parameters, such as better equipment, working time, improve the working force, improving product quality and production efficiency.