1.

Classical Theories of Wages

Generally, the prices of factors are determined by the interaction of demand and supply, which
should also be applicable in determining the wages for labor.

However, the theory of demand and supply is not fully applicable while determining wages for
labor.This is because labor as a factor of production is distinct from other factors of
production.

2. The Just Wage Theory of St. Thomas Aquinas

Workers being paid a just wage is a major element of the social teaching and is something
that all Catholics need to understand and be supportive of as it is directly connected to the
respect for human dignity that underlies all of the social teaching.
3. WAGES FUND THEORY
As per the wage fund theory, the wage level depends on the quantity of the wage fund and
the number of people who are employed. Wage fund refers to the amount of capital that an
employer keeps for paying wages to labor.

The level of wages can be determined with the help of the following formula:
Level of wages = Wage fund/Number of employees

This equation implies that wages are directly proportional to wage fund and are inversely
proportional to number of employees. Therefore, wages increase when wage fund increases or
number of employees decreases.

However, according to the wage fund theory, wage fund is constant. Therefore, the wage level
would increase only by reducing the number of employees. According to this theory, trade
unions do not have any control on the level of wages.

4. BARGAINING THEORY OF WAGES HOLDS THAT WAGES, HOURS, AND WORKING

CONDITIONS ARE DETERMINED BY THE RELATIVE BARGAINING STRENGTH OF THE
PARTIES TO THE AGREEMENT.
The bargaining theory of wages: John Davidson propounded this theory. According to him,
wages are determined by the relative bargaining power of workers or trade unions and
employers. When a trade union is involved, basic wages, fringe benefits, job
differentials and individual differences tend to be determined by the relative strength of the
organization and the trade union.
 5. Marginal productivity theory, in economics, a theory developed at the end of the 19th
century by a number of writers, including John Bates Clark and Philip Henry Wicksteed,
who argued that a business firm would be willing to pay a productive agent only what
he adds to the firm’s well-being or utility; that it is clearly unprofitable to buy, for
example, a man-hour of labor if it adds less to its buyer’s income than what it costs.
This marginal yield of a productive input came to be called the value of its marginal
product, and the resulting theory of distribution states that every type of input will be
paid the value of its marginal product.
7. The labor theory of value says that the value of a finished good correlates solely
with the number of labor hours required to produce it.
Marx touted the labor theory of value as the exclusive basis for determining the market
price of goods. In other words, any two goods requiring an identical number of labor hours to
produce them should have the same market price. For example, if an 18-karat gold filigree
bracelet and an electronic toy car each require 10 hours to complete, both should have the
same price.
Here is an example of how the labor theory of value works: A worker in a factory is given $30
worth of material, and after working 3 hours producing a good, and using $10 worth of fuel to
run a machine, he creates a product which is sold for $100. According the Marx, the labor and
only the labor of the worker increased the value of the natural materials to $100. The worker
is thus justly entitled to a $60 payment, or $20 per hour.
8. Standard of living theory: This theory is a modified form of subsistence
theory. According to this theory, wages are determined not by
subsistence level but also by the standard of living to which a class of
Laboure’s become habituated