A wage payment is essentially a price paid for a particular commodity, viz., labour services. It is also known as Demand and Supply theory of wages. The subsistence theory of wage is also known as “iron law” of wage. The theory emphasizes the importance of a person actually experiencing the reward. This theory is based on the assumption that the wages are paid out of predetermined fund. (4) Marginal Productivity Theory. The Market theory of wages and . According to this theory, wage must be equal to the subsistence level of the labourer and his family. Therefore, the firm may feel that the cost savings of lower wages will be offset by a fall in productivity. Several authorities consider that Ricardo is the source of the concepts behind the so-called Iron Law of Wages, according to which wages naturally tend to a subsistence level.Others dispute the assignment to Ricardo of this idea. Motivation, according to the theory, is the product of valence However, these theories are not applicable in all circumstances. Some of these theories are discussed below: 1. 4. This paper considers two sets of theories attempting to explain wage rigidities and unemployment: implicit contract theory and the efficiency wage theory. International economic relations. The theory does not explain the causes for differences in wages. Taussig’s theory ultimately analysed is another version of the Residual Claimant Theory of Wages. (2) Wage Fund Theory. 7.Employment Theory Supply and demand theory It is based on the inter-relation between wages and employment. This theory takes into consideration only supply side of the labour. The Marginal productivity theory of wages ; 2. The Wage Fund Theory of Wages 4. Early theories of wages The subsistence theory of wages : According to this theory, the wages that are paid to a worker must be just enough to cover his bare needs of subsistence. The marginal revenue productivity theory of wages is a model of wage levels in which they set to match to the marginal revenue product of labor, MRP (the value of the marginal product of labor), which is the increment to revenues caused by the increment to output produced by the last laborer employed. Second, employing utility theory to study labor casts doubt on the classical theory of wages. It was first explained by Physiocrats, a group of French economists and restated by Ricardo. Theories of Compensation Definition: The Compensation is the remuneration given to the employees for the work they do for the organization. These two theories are: 1.Traditional Theory of Wage Determination In this theory the law of supply and demand dictates salary. Theory of wages There are two key theories that explain why salaries are the way they are in a particular field. The Standard of Living Theory of Wages 3. 3. Ricardo's Theories of Wages and Profits. Modern Theory of Wages 6. The basic thesis of the paper is that the former set of theories do not provide a convincing explanation of the kind of wage rigidity which is associated with cyclical unemployment,while the latter theories do. It was so named by physiocrats like Lassalle, a German economist and Quesnay, a member of school of economists and developed by David Ricardo. 2. When a labourer is employed he produces goods. There are four different theories, according to which firms can benefit in four different ways from paying efficiency wages: higher employee effort, lower employee turnover, attracting higher quality employees, and more healthy employees. World economy Publisher The Macmillan Company Collection universallibrary Contributor Osmania University Language English. The theory of marginal productivity became the basis of the concept of a regulated wage by the English economist JM Keynes (see 2AA). Like the reinforcement theory, Vroom’s expectancy theory focuses on the link between rewards and behavior. Sometimes other theories are useful when explaining wage differentials. Subsistence theory is one of the oldest theories of wages. (3) Residual Claimant Theory. Wages . This theory states that wage are of the nature of a residue and the worker is to get what remains after other agents of production have been paid. They hold that change in the supply of workers is the basic force that drives real wages to the minimum required for subsistence (that is, for basic needs such as food and shelter). Residual Claimant Theory of Wages 5. David Ricardo develops it. The Bargaining theory of wages. (5) Modern Theory of Supply and Demand. Contemporary wage theory could not have developed until the feudal system had been replaced by the The most acceptable theory of wages is the modern theory of wages. The economic theories of wages. 1. Collective bargaining provides an example of what is sometimes called bi-lateral monopoly, the trade union being the monopolist supplier and the employer’s association, the monopolist buyer of a particular kind of labour. These days programmers are in short supply and are in great demand thus they will command a higher salary. From this flowed the idea of the 'subsistence wage' with which Malthus earned economics the tag of "the dismal science" and Lasalle's Iron Law of Wages. Humans were not at the mercy of a subsistence wage; rather, the labor supply depended upon the going wage. The most important theories of wages determination are: (1) Subsistence Theory of Wages. Wage theory Theories of wage determination and speculations on what share the labour force contributes to the gross domestic product have varied from time to time, changing as the economic environment itself has changed. Earlier theories of wages have been rendered invalid or atleast inadequate, as a result of collective bargaining by trade unions. 3. If the fund is large wages would be high and if the fund is small wages would be reduced to the subsistence level. Smith argued that wages would rise when an economy was growing but otherwise he posited a clear general tendency for wages to feel only downward pressures. Efficiency wage theories. Marginal Productivity Theory of Wages. Wage is determined at the point where demand for and supply of labour are equal to each other. Wage is a remuneration to labor for the work done for the service rendered by it to the employer. We have to go back for them Marshall's Principles and Clark's Distribution of … The Theory Of Wages by Douglas, Paul. This is why the modern theory is known as supply and demand theory of wages, Demand for labour: As such, the theory is open to al\ the objections put forward against the Residual Claimant Theory Commerce. wage theories(behavioural and economic), wage policy, strategic perspcetive of compensation theory of wages both wi th rega rd to logic and on the bas is of textual analys is. Demand for labour : Producers demand labour because labour is productive. The theory of population, expounded by Malthus was also based on this “iron law”. In other words, an employee is entitled to both the financial and the nonfinancial benefits in return for his contribution to the organization. A strong union, for example, may have the power to force higher wages … This is an argument that paying a higher wage increases workers morale, loyalty and willingness to work hard. The bargaining theory is very attractive to labour organizations, for, contrary to the subsistence and wages-fund theories, it provides a very cogent reason for the existence of unions: simply put, the bargaining strength of a union is much greater than that of individuals. Subsistence theories emphasize the supply aspects of the labour market while neglecting the demand aspects. The ethics of wages and working conditions is a broad topic that includes consideration of right and wrong in a wide range of questions having to do with the treatment of workers.. One central set of concerns has to do with what constitutes fair wages (or pay, or compensation more generally). There are different theories on the concept of wages as enunciated by economists and sociologists, which explain various aspects of wage problems. Criticism of Subsistence Theory Of Wages: 1. The basic premise of his concept is that with an unchanged level of technology, given the organization and the means of production, the volume of production is in inverse relation to real wages. Subsistence Theory of Wages . wage theory seems long overdue. Some of the important recent theories of wages are . The term 'wage' has been defined as a sum of money paid under contract by an employer to a worker for services rendered. Subsistence theory. Let us now explain these theories one by one. According to this theory wages are determined by demand and supply of labour. Modern economist opines that the price or remuneration of labour i.e. It ignores the demand side of the labour. wage is determined by interaction of forces of demand and supply. It is wrong to say that an increase in the wage level will increase the size of the family. It says that workers are paid to enable them to subsist and perpetuate the … 1. Theories regarding the determination of wages of employee are: (i) Subsistence theory (ii) Wage Fund Theory (iii) Surplus Value Theory of Wages (iv) Residual Claimant Theory (v) Marginal Productivity Theory (vi) Bargaining Theory of Wages (vii) Behavioral Theory of Wages. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. H. Publication date 1934 Topics SOCIAL SCIENCES, Economics, Trade. Theory of Negotiated Wages. Wages and salaries have become a matter of grave importance to the individual and the public at large. He says, in fact, that wages are what is left after rent, interest and profits are deducted from the total output. For the most recent comprehensive statements of a positive theory wages in English-<>£ anything more than an elementary character-are now thirty or forty years old. Unemployment would disappear, if workers were to accept a voluntary cut in wages, pleaded for wage flexibility for promoting employment at a time of organisation depression. 2) Wage fund theory for determination of wages: this theory was given by Adam Smith and further expounded by J. S. Mill. According to the Efficiency Wage Theory, firms can operate more efficiently and become more productive if they pay wages above the equilibrium level. If wages got too low, workers would withdraw from the market and enjoy leisure. 2) Meaning and Definition of Wage According to the classical wage theory, labour supply was considered a function of real wages. Theories of Wages . Theory of wages is a branch of study, which analyze the supply and demand conditions of labor as indicated by Dunlop. A cut in wages is a psychological blow, which will seriously reduce labour morale and productivity. 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