• This theory was developed by Adam Smith (1723-1790). • His theory was based on the basic assumption that workers are paid wages out of a pre- determined fund of wealth. • This fund, he called, wages fund created as a result of savings. • According to Adam Smith, the demand for labour and rate of wages depend on the size of the wages fund. • Accordingly, if the wages fund is large, wages would be high and vice versa. 2. Subsistence theory
• As per this theory there should be minimum
limit of wages below which labor supply will not be available.
• If the workers were paid more than the
subsistence wages their number would increase and this would bring down the rate of wages and if the wages fall below the subsistence level, the number of workers would decrease. • Thus the natural price of labor is that price which is necessary to enable the laborers one with another to subsist their race without either increase or decrease. 3) Surplus value theory • this theory was developed by Karl Marx. • As per this theory the price of the product is determined by the labor time needed to produce it and the surplus goes to be utilized for paying other expenses. 4) Residual claimant theory • Francies A. Walker has given this theory. • As per him there are four factors of production land, labor, capital and entrepreneur. • Wages are paid to the labors after paying of the land, capital and entrepreneur that is why they are called residual claimant. • The wages are equal to production minus rent, interest, and profit. 5) Marginal productivity theory • This theory was developed by Henry Wicksteed and John Clark. • According to this theory wages are depend upon the demand and supply of labor. • Workers are paid as per what they are economically worth. 6) Bargaining theory
• This theory given by John Davidson.
• As per this theory wages are determined by the bargaining power of the workers and of the employers. • This is possible in big organizations where labor is well-organized. 7) Behavioral theory
• many researchers, scientists have contributed
in this theory like March, Simon, Dubin.
• As per them wages are determined by the
size, status of the company, strength of the union, contribution by different kinds of workers etc.