0 Wage Theories

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0 Wage Theories

  1. 1. Wage theories
  2. 2. Meaning and Definition <ul><li>Wage: Payment for labor or services to a worker, especially remuneration on an hourly, daily, or weekly basis or by the piece. </li></ul><ul><li>In economic theory, wages reckoned in money are called nominal wages, as distinguished from real wages, i.e., the amount of goods and services that the money will buy. Real wages depend on the price level, as well as on the nominal or money wages. </li></ul>
  3. 3. Economic Theories about Wages <ul><li>Many theories have been advanced to explain the nature of wages. The first of them was the subsistence theory of wages, also called the “iron law of wages,” of which David Ricardo was one of the main exponents. </li></ul>
  4. 4. Modern wage theory of wage <ul><li>Wage is a price of productive labour. The marginal productive theory, indeed, provides fairly satisfactory explanation of wage determination but its main shortcoming is that it does not consider the supply aspect of labour and concentrate on demand side. </li></ul>
  5. 5. <ul><li>The modern theory of wages is an extension of this theory in more logical and rational way. </li></ul><ul><li>Here, the wage rate, is determined by the interaction of the forces of demand for and supply of labour in given market situation. </li></ul>
  6. 6. <ul><li>The demand for Labour </li></ul><ul><li>Productivity of labour </li></ul><ul><li>Technology </li></ul><ul><li>Demand for the product. </li></ul><ul><li>The price of capital input . </li></ul>
  7. 7. Shift in demand for labour <ul><li>The industries demand as a whole represent the market demand for labour. </li></ul><ul><li>An industry is collection of firm. </li></ul>
  8. 8. Shift in demand for labour D1 D2 MRP1 MRP2 MRP D Increase Decrease demand Demand for labour unit Productivity Y X O
  9. 9. Wage determination under competitive condition DL D SL S W AW=MW W O Y X X Y O (Labour supply curve ) (Wage line) AC=MC of labour N E Units Of Labour Units Of Labour Wage Rate Industry Market Firm
  10. 10. Relation between Wage and Managerial Productivity X Y Y X 0 0
  11. 11. X Y 0
  12. 12. Y Y X X 0 0
  13. 13. <ul><li>THANK YOU </li></ul>

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