Concept of wages

CONCEPT OF WAGES
By
Dr. Sridevi Krishna
Asst. Professor
VVLC
Mysuru

Introduction
• Wage is a reward for the service rendered or
remuneration for the work done and it is as old as the
society itself.
• After industrialization the quantum of wages assumed a
common cause of friction between the employers and the
wage earners.
• Demand for wage increase resulted in strikes.
• The determination of adequate wages was not only
economic problem but was linked with various other
factors like place of industry, prices of the product, living
standard, basic needs and the govt, policies in a given
society

History
• Laissez faire continued to govern the field of
industrialization for quite a long time.
• First instance was 1918 dispute at Ahmedabad textile
industry where Gandihji played an important role.
• The strike of workers continued for 23 days and ended
with voluntary arbitration of both employees represented
by Gandhiji and employers by Ambalal Sarabhai the
president of Mill Owners Association. They agreed for
payment of DA increase and determined the wages.
• However, third party intervention in industrial dispute
started through Trade Disputes Act, 1929 invoked by
Govt. only in selective cases.

Whitley Commission
• Commonly called as The Royal Commission appointed
during 1931-33.
• It examined various issues relating to wage- levels and
reported on minimum wages, standardized wages, wage
incentives and suggested for collection of relevant wage
data to resolve the wage determination.
• Recommended for minimum wages
• Brought govt. attention towards unfair deduction made by
employers.
• Called for making new law in this regard
• Outcome- Payment of wages act, 1936

Rege Committee
• Various ad hoc committees were constituted by govt. to
settle the wage disputes and recommend for wage
structure.
• It identified the difference in levels of wages in agriculture
and in industries and observed that such difference
should not be over-emphasized. It can be partly justified
because of conditions under which industrial workers
were made to work and live.
• ‘Agricultural wages are low’ could not be a justification for
keeping industrial wages low.

Industrial Truce Resolution, 1947
• Passed after World War II.
• With a view to save the industries from being affected by
World War II exigencies.
• This Resolution called upon labour and the management
to maintain industrial peace and avert strikes, lock-outs
and slowing down of production for a period of three years
and for the management to ensure fair wages to labour,
fair return on capital employed in the industry, and
reasonable reserves for the maintenance and expansion
of the undertaking'

The Industrial Policy Resolution 1948
• It fixed minimum wages in sweated industries and
stressed on promoting fair wage agreement in organized
sector of industries.
• Minimum Wages Act, 1948 was passed.
• Committee on fair wage was appointed.
• The committee described wages with reference to three
levels-
• Minimum wages
• Fair Wages
• Living Wages
• Various factors were recommended to fix the above.

Early history on kinds of wages
• The concept of wages can be traced back to the year
1907 when for the first time Justice Higgins, the president
of commonwealth conciliation and arbitration court,
Australia in the famous Harvester’s Case.
• It was held that Living wage was a first charge upon
industry, and it set a basic wage for unskilled labour at a
level substantially higher than existing rates.
He emphasized that minimum wage can be used as a
yardstick to determine living wage.
Further the concept crucially indicate various standard of
living of a worker and the actual amount in terms of money
is to be determined by the wage fixing machinery.

Kinds of wages
• Minimum wages- Justice Higgins- irreducible level of
wage paid to an unskilled worker, considering him a
human being living in a civilized society.
• Three important consideration-
• 1. it is irreducible
• 2. It is paid to unskilled worker
• 3. Worker is to be considered as a human being living in
civilized society and therefore he is entitled to basic needs
of food, clothing and shelter like any other human being.

Living wage ಜೀವನ ವೆತನ
• One should not only provide for food, shelter and clothing
but for some frugal comfort of life, good education to
children, some amusement and provision for sickness and
old- age including some measure of social security.
• Express Newspaper Ltd v Union of India
• SC observed- living wage should enable the wage earner
to provide for himself and his family not only for the three
basic necessities of life but also for frugal comforts, good
education to children, protection against ill-health and a
measure of insurance against the more important
misfortune including old-age.

Crown Aluminum Works ltd v Their workmen
• The SC observed that though it is very difficult to define or
even to describe accurately the contents of living wage, in
an expanding national economy the contents of these
expressions also expand and vary.
• The committee on fair wage describes living wage as-
the living wage should enable the male earner to provide
for himself and his family not merely the bare essentials
but a measure of frugal comfort including education for
children, protection against ill-health, requirements of
essential social needs and a measure of insurance
against the more important misfortunes including old-age.

Fair wageನ್ಯಾಯಯುತ ವೆತನ
• The CFW defined three levels of wages- minimum, living and
fair wages.
• Fair wage is a mean (ಮಧ್ಾಮಯರ್ಗ) between the living wage and
the minimum wage.
• Any amount in excess of minimum wage can be regarded as
fair wage and it continues to remain fair until it is merged into
living wage.
• Prof Pigou describes fair wage as-
• Fair wage in narrow sense
• Fair wage in wider sense
• A fair wage is narrow in sense if it is equal to the rate current
for similar work in the same trade and neighborhood. It is wider
in sense when it is equal to the predominantಪ್ರಧಯನ rate for
similar work throughout the country and in the generality of
trades.

CFW
• Determination of Fair wage would depend not on the present
economic position of the industry but on its future prospects
also.
• In between these two limits the actual wage would depend on-
• The productivityಉತ್ಯಾದಕತ್ೆ of labour
• The prevailing rates of wages
• The level of national income and its distribution
• The place of industry in the economy of the country.
• But actual weightage cannot be given to the above factors.
• Sangam Press v Its workmen- SC observed that in case of
fair wage, besides the principle of industry cum region, the
company’s capacity to bear the financial burden must receive
due consideration.

Theories of wages ಸಿದ್ಯಾ೦ತ
1. Subsistence Theory. ಜೀವನಧಯರ
2. Wage Fund Theory. ವೆೀತನ ನಿಧಿ
3. Surplus Value Theory. ಹೆಚ್ುುವರಿ ಮೌಲ್ಾ
4. Residual Claimant Theory. ಉಳಿದ ಹಕುುಧಯರ
5. Marginal Productivity Theory. ಕನಿಷ್ಟ ಉತ್ಯಾದಕತ್ೆ
6. Demand and Supply Theory. ಬೆೀಡಿಕೆ ಮತುು ಪ್ುರೆೈಕೆ
7. Bargaining Theory. ಚೌಕಯಶಿ
8. Behavioral Theory. ವತಗನ್ೆಯ
9. Just Price Theory. ಕೆೀವಲ್ ಬೆಲೆ
10. Investment Theory. ಬ೦ಡವಯಳ

1. Subsistence Theory
• David Ricardo developed this theory. It is also known as the iron law
of wages. It says that workers are paid to enable them to subsist and
perpetuateಶಯಶ್ವತವಯಗಿಸುವ the rate without increase or diminution.
• Low wage leads to decrease of labor due to death and malnutrition,
while higher wages increase their number due to better health, long
life, and more marriage.
• Criticisms-
• The relation between marriages and wages. It is incorrect to say
that when the money income of a person increases about the
subsistence level, he marries and increases the birth rate. While,
when income increases, people improve their standard of living
instead of having a marriage.
• Demand-side ignored. This theory gives more importance to the
supply side and ignores the demand side of labor, for the
determination of wages.
• The difference in wages. This theory fails to explain why wages
differ from occupation to occupation and from person to person.
• Trade unions ignored. This theory ignores the role of trade unions.
But in the present age, unions are playing a very important role in the
determination of wages.

2. Wage Fund Theory
• Adam Smith developed this theory. The wage level is a function
of surplus fund available’ with the employer: the higher the
fund, the higher the wage. The focus is on the employer and
his capacity to pay.
• Criticism-
• The difference in wages. According to this theory, all the
workers receive equal wages, while wages differ from worker to
worker.
• The demand factor ignored. In this theory, the supply of labor
has given much importance, while the demand factor has been
ignored.
• Existence of fund. According to this theory, there is a separate
fund for the payment of wages, while in reality, there is no
special fund that is particularly meant for the payment of wages
to the workers.
• Objection on homogeneous labor. This theory assumes that
labor is homogeneous, and they should be paid equally, but all
the units of labor cannot be homogeneous.

3. Surplus Value Theory
• Karl Marx developed it. Here labor is viewed as a commodity for
trade.
• Labor adds value to the product. The employer did not pay the full
amount so collected from the customer, and instead, only a part is
paid to them as wage, retaining the remaining by the employer.
• In Marx’s estimation, it was not the pressure of population that drove
wages to the subsistence level, but rather the existence of a large
number of unemployed workers.
• Marx blamed unemployment on capitalists. He renewed Ricardo’s
belief that the exchange value of any product was determined by the
hours of labor necessary to create it.
• Furthermore, Marx held that, in capitalism, labor was merely a
commodity: in exchange for work, a laborer would receive a
subsistence wage.
• Marx speculated, however, that the owner of capital could force the
worker to spend more time on the job than was necessary for earning
this subsistence income, and the excess product-or surplus value-
thus created would be claimed by the owner.
• This argument was eventually disproved, and the labor theory of
value and the subsistence theory of wages were also found to be
invalid.

4. Residual Claimant Theory
• Francis Walker propounded this theory.
• According to this theory, four factors add value to the product,
which is manufactured. These are land, labor, capital, and
entrepreneurship. The revenue earned by selling products was
first distributed among the three factors as compensation
against their contribution.
• Whatever remained was paid to labor as wage against their
value addition. Thus labor is considered as a residual claimant.
This theory has been criticized on the following grounds:
• Supply influence ignored. This theory ignores the influence of
the supply side in the determination of wages.
• Role of trade unions. It fails to explain as to how the trade
unions raise their wages.
• Entrepreneur right. A residual claimant is the right of the
entrepreneur and not the labor. The labor receives its share
during the process of production.
• Case of loss. Suppose the firms suffer a loss, in that case,
how labor will bear the loss.

5. Marginal Productivity Theory
• This theory was developed by Phillips Henry Wicksteed
and John Bates. Here demand and supply of labor in the
labor market determine wages.
• Accordingly, workers are paid what they are economically
worth as assessed by the employer.
• The marginal concept says that the employer continues to
employ labor as long as value addition by the marginal
worker is more than his cost. The result is that the
employer has a larger share in the profit as has not to pay
the non-marginal workers.

6. Demand and Supply Theory
• Just as the price of a commodity is determined by the
interaction of the forces of demand and supply, the rate of
wages can also be determined in the same way with the
help of demand and supply forces.
• The supply of labor depends upon factors such as the
size of the population, mobility of labor, and social
structure. The wages will be determined at the point
where demand and supply both are equal to each other.

7. Bargaining Theory
• John Davidson developed this theory.
• Here wage level is determined by the bargaining power of
employers and their association vs. employees and their
trade unions.

8. Behavioral Theory
• Norms, traditions, customs, goodwill, and social pressure
influence the wage structure. Wages are the best
motivators for workers.
• The wage must satisfy a number of needs, as identified
by Maslow, Herzberg, and others Examples of needs
are physiological, security, food and shelter, etc.

9. Just Price Theory
• This theory, developed by Plato and Aristotle, suggested
that each person born into the world be fore ordinated to
occupy the same status and to enjoy the same creative
comforts as did his/her parents.
• Therefore, society should provide these individuals with
sufficient compensation to maintain the same position of
life into which they were born. This theory made no
recognition of the differences in productive efficiency
between two workers.

10. Investment Theory
• H.M. Gitelman developed this theory. The individual
workers’ investment consists of education, training, and
experience that a worker has invested in a lifetime of
work.
• Gitelman assumes that workers’ compensation is fixed by
the rate of return on that workers’ investment. Workers
can control the level of their compensation.

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