DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : G. M. Lakshmi
Designation : Lecturer
Institution : GPW Suryapet
Branch : DCCP
Year/Semester : VI th semester
Subject : Business Economics II
Subject Code : CCP-602
Main topic : Theories of wages
Sub-topic : Wage Fund theory
Duration : 50 minutes
Teaching Aids : PPT, Animation.
CCP602.12TO13 1
Objectives

On Completion of this period, you would be

able to know:
 Wage fund Theory

CCP602.12TO13 2
Recap

In the previous class we have learnt the Subsistence

theory of Wages :
 Can you say what is Subsistence level
 Who advocates this theory
 Say any one Criticism on Subsistence theory of
Wages

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Wage Fund Theory
J.S Mill advocated this theory

 Wages depend upon the demand and supply of

labour
 Wages are Expressed as the proportion between
population and capital

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 In every country ,a fixed portion of capital is set
aside for payment of wages
 This part of the capital is utilized for payment of
wages
 So it is called Wage fund
Wages are determined by the ratio between the
amount of wage fund and total supply of labour

CCP602.12TO13 5
According to J.S. Mill :-

 wages depend on the demand and supply of

labour or on the proportion between population and
capital

Population here means only the labouring classes

or those who work for hire

Capital means only circulating capital

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 Level of wages can be ascertained by a simple
arithmetic operation
Wages = Wage Fund
______________________

Number of Workers
 In other words , wages vary directly as the
quantity of capital and the Number of Workers
varies

CCP602.12TO13 7
This theory also states that:

 Labourers cannot wait for their wages till

the goods are sold
 They are to be paid during the production process
itself

 Wage fund enables such payments to the labourers

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 Wage fund represents the total demand
for labour in terms of money

 Wages can rise only, when there is an increase

in the wage fund

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 But it takes longer time to increase the wage fund

 Another way to increase wages is to reduce the

supply of labour

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Wage Rate Determination:

 Suppose wage fund in a firm is Rs.10,000/-

 The no. of workers are 1,000

 Then average wage rate=

Rate of wage= wage fund

No. of labourers

that is RS. 10,000 = 100 Per Worker

1,000

CCP602.12TO13 11
 Efforts of trade unions to raise wages are futile
 If they succeed in raising wages in one trade
 Since the Wage fund is fixed and trade unions
have no control over the Population , Trade
unions have no role to play

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 Wages can be increased at the expense of profits

 But profits are not constant

 Hence wage rate cannot be constant

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Summary

 Wage fund theory was Advocated by J.S Mill

 The part of the capital which is set aside for
payment of wages is called Wage Fund
 Wage is determined by the amount of wage fund
and number of labourers

CCP602.12TO13 14
Quiz
1. Wage is determined by the Following aspects
a) Amount of Wage fund
b) Number of Labourers
c) Both A and B
d) None

7. Wage Fund Theory was advocated by

a) Adam Smith
b) J.S Mill
c) Keynes
d) All the Above
CCP602.12TO13 15
1) Trade unions have no Role to Play in Changing
the Wages
a) Yes
b) No
c) Not known
d) None

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Thank you

CCP602.12TO13 17
Assignment

1. Prepare answer for the below Question

a) Explain the Wage Fund Theory

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