THEORIES OF WAGES

Presentation by
A.G BLESSY ESTHER
II MSW (HR)
7 IMPORTANT THEORIES OF
WAGES

Wages fund Theory

Subsistence theory
The surplus value theory
of wages
Residual claimant theory
Marginal productivity
theory
The bargaining theory of
wages
Behavioural theories
WAGE FUND THEORY
 This theory was first propounded by Adam
Smith.
 But the credit goes to J.S Mill who perfected
this theory.
 According to Mill “every employer will keep a
given amount of capital for payment to the
workers”.
 It is fixed and constant.
 Wages depend directly upon the fund and
inversely with number of labourers
employed.
WAGE FUND THEORY
 The average wage of a worker can be
calculated by using the formula.
 Average wage per worker = Total Wage fund

Number of workers

 If the number of workers increases, the

wage per worker would fall and vice versa.
SUBSISTENCE THEORY OF
WAGES
 It is one of the oldest theory of wages.
 It was first explained by physiocrats , a group
of French economists and restated by David
Ricardo.
 According to this theory, wage must be equal
to the subsistence level of the labourer and
his family.
 Subsistence means the minimum amount of
food, Clothing and Shelter which workers and
their family require for existence.
SUBSISTENCE THEORY OF
WAGES
 If workers are paid higher wages than the
subsistence level the workers would be better
off and they will have large families.
 Hence the population would increase.
 When the population increases, the supply of
labourer would increase and therefore, wages
will come down.
 On the other hand, if wages are lower than the
subsistence level, there would be a reduction in
population and thereby the supply of labour
falls and wages increase to the subsistence
level
THE SURPLUS VALUE THEORY
OF WAGES
 This theory was developed by Karl
Marx(1849-1883).
 This theory is based on the basic assumption
that like other article, labour is also an
article which could be purchased on payment
of its payment of its price i e wages.
 This payment, according to Karl Marx, is at
subsistence level which is less than in
proportion to time labour takes to produce
items.
THE SURPLUS VALUE THEORY
OF WAGES
 The surplus, according to him, goes to
owner.
 Karl Marx is well known for his advocation in
the favour of labour.
RESIDUAL CLAIMANT THEORY
OF WAGE
 This theory was propounded by the American
economist F.A Walker in 1875, in his book
Political Economy.
 According to this theory, wage is the residual
portion after paying the remuneration of all
the other three factors, Namely, land,
capital and organization.
MARGINAL PRODUCTIVITY
THEORY OF WAGE
 This theory was propounded by Phillips Henry
Wick-steed and John Bates Clark of U.S.A.
 According to this theory, wages are
determined by production contributed by the
last worker.
 His/her production is called ‘marginal
production’.
BARGAINING THEORY OF WAGES
 John Davidson propounded this theory of
wages.
 Under this theory, wages are determined by
relative bargaining power of workers of their
union and of 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 employers and
the trade unions
BEHAVIOURAL THEORY
Many behavioural scientists presented their
views on wages and salaries on the basis of
research ,
It has determined by such factors as, size and
prestige of the company, strength of the
union, the employer’s concern to maintain the
workers, contribution by different kinds of
workers etc.
PERFECTED ONE OF THE
THEORY

J.S MILL – Wage fund theory

 PROPOUNDER

F.A WALKER- RESIDUAL

CLAIMANT THEORY
HE DEVELOPED ONE OF THE
THEORY

KARL MARX- SURPLUS VALUE

THEORY
PROPOUNDER

Phillips Henry-Marginal Productivity

theory
PROPOUNDER

John Davidson – Bargaining Theory

RESTATED ONE OF THE
THEORY

David Ricardo – Subsistence Theory

THANK YOU