Theories of wages

1. Theories of Wages
• An Overview of Classical and Modern
Approaches
• Presented by: [Your Name]
• Date: [Insert Date]

2. What Are Wage Theories?
• Wage theories explain how wages are
determined.
• They consider labor supply, productivity, and
negotiations.
• Different models offer various perspectives on
wage setting.

3. Subsistence Theory
• Proponent: David Ricardo
• Wages settle at the minimum needed for
survival.
• Higher wages lead to more workers, pushing
wages down.
• Focused on basic living, not skills or markets.
• Example: In early industrial England, factory
workers earned just enough for food and
shelter.

4. Wage-Fund Theory
• Proponent: John Stuart Mill
• Wages come from a fixed fund divided among
workers.
• More workers mean lower individual wages.
• Doesn't consider growth in capital.
• Example: A small business with a limited
payroll budget pays lower wages if more
employees are hired.

5. Marginal Productivity Theory
• Proponent: John Bates Clark
• Wages reflect a worker’s contribution to
output.
• Employers hire until wage equals added value.
• Focuses on efficiency and productivity.
• Example: A software company pays developers
based on the value of features they code.

6. Bargaining Theory
• Proponents: John Davidson, A.C. Pigou
• Wages are set through negotiation.
• Influenced by unions, labor laws, and
employer strength.
• Reflects real-life power dynamics.
• Example: Unionized auto workers negotiate
higher wages and better benefits.

7. Human Capital Theory
• Proponent: Gary Becker
• Wages increase with education, skills, and
experience.
• People are seen as investments.
• Highlights the value of training.
• Example: A college graduate typically earns
more than a high school dropout.

8. Additional Wage Theories
• Residual Claimant Theory (Francis Walker):
Wages are what’s left after costs.
• Standard of Living Theory: Wages support a
basic lifestyle.
• Behavioral Theories: Workplace and
psychology matter.
• Example: Startups often pay low wages
initially because profits go toward covering
expenses.

9. Contemporary Influences
• Wages are also shaped by:
• - Government policies (minimum wage)
• - Inflation and cost of living
• - Technology and globalization
• - Labor demand and supply
• Example: Tech companies in high-cost cities
offer higher salaries to match living expenses.

10. Conclusion
• Different theories show different aspects of
wage determination.
• Classical theories focus on basics, modern
theories on skills.
• Understanding them helps in policy and
planning.
• Example: Policymakers use human capital
theory when investing in education to boost
the economy.