Labour & Wages - Hemant Mahara

1. Presentation on:
Labour & wage
Presenter: Hemant Mahara

2. Labour
 Labour is a measure of the work done by human beings
 Labour would mean any work, manual or mental, which
is done for a reward.
 Marshall defined labour as “any exertion of mind or
body undergone partly or wholly with a view to some
good other than the pleasure derived directly from the
work”
 Labour is all that physical and mental activity which
produces goods and services.

3. Characteristics of Labour
 Labour is original and indispensable factor of
production
 Labour is an active factor of production
 Labour is perishable than any other commodity
 Labour cannot be separated from the labourer
 Labour is less mobile
 Labour supply is inelastic

4.  A labourer sells his labour and not himself
 Labour has weak bargaining power
 Labour is both the beginning and the end of production
 Difference in Efficiency
 Labour cannot be engaged continuously in production
like machine
 Labour creates capital
 It is difficult to calculate the cost of production of
labour

5. wage
 A wage is monetary compensation (or remuneration,
personnel expenses, labour) paid by an employer to
an employee in exchange for work done
 Rewards given to the workers, whether mental or physical
are termed as wages in economics
 Wages are the most common earnings of people.
Perceived by workers, clerks, managers, and employees in
general, wages and salaries constitute the core element
in income for the majority of active people. Similarly,
many pension schemes are based on wage levels and
dynamics.

6. Theories of wages
Marginal Productivity Theory of Wages
 The marginal productivity theory of wage states that the price
of labour, i.e., wage rate, is determined according to
the marginal product of labour. This was stated by the
neoclassical economists, especially J. B. Clark, in the late 1890s
 The term marginal product of labour is interpreted here in
three ways:
1. Marginal physical product of labour (MPPL)
2. Value of the marginal product of labour(VMPL)
3. Marginal revenue product of labour(MRPL)

7.  When marginal product of labour is expressed in money terms
we obtain VMPL. MRPL is the change in total revenue following a
change in the employment of labour. Marginal productivity
theory of wage states that wage of labour equals VMPL (= MRPL).
Employer will employ labour up to the point until market wage
equals labour’s value of the marginal product(VMP) and marginal
revenue product (MRP).
Assumptions of Marginal Productive theory of wages
 Perfect competition prevails in products market and in labour
market.
 Law of variable proportions operates.
 The firm aims at profit-maximization.
 All labourers are homogeneous and are divisible.
 Labour is mobile and is substitutable to capital and other inputs.
 Resources are fully employed.

8. Limitations of Marginal Productivity Theory of Wage
 In the real world, perfect competition does not exist—both
in the product market and in the labour market.
 Labour can never be homogeneous— some may be skilled
and some may be unskilled.
 Perfect mobility of labour is another unrealistic assumption
 The marginal productivity theory of wage ignores the supply
side of labour and concentrates only on the demand for
labour
 Full employment of resources is another unrealistic
assumption
 This theory, in fact, is not a wage theory but a theory of
employment
 Finally, this theory ignores the usefulness of trade union in
wage determination.

10. Modern theories of wages
 Logical extension of marginal productive theory.
 Wage rate is determined by the interaction of the forces of
demand and supply of labour in given market situations
 Also called “Demand & supply theory”.
Demand of Labour:
• The demand for labour reflects partly labourers productivity
and partly the market value of the product at different level
of production
Supply of labour: The supply of labour depends on:-
• The number of workers of a given type of labour which
would offer themselves for employment at various wage rate
• The number of hours per day or the number of days per
week they are prepared to work.

11. Fig.3.Demand of Labour Fig.4. supply of labour