Question

In: Economics

Meaning and Theories of Wages in Economics.

What is Wages?

What is Monetary Wages and Real Wages?

What are the theories of Wages? Name them. Ilustrate critically 'Wage Fund Theory' of Wages. 

Solutions

Expert Solution

Meaning of Wages - - - - -

 

The payment received in exchange of providing labour is called a wage. This is considered a very important factor payment as wage  determination affects a very large number of people in an economy. In ordinary parlance, payments made to an unskilled labour only is called wages, which fixed payments made to a skilled worker or a white collared worker is called a salary. However, in economic theory, all payments made to workers, employees or officers are called wages.

 

Monetary Wages and Real Wages - - - - - - - -

 

The amount of money received by a labour is called monetary wages. However, sometimes the labour also gets some other advantages, from his employment, like a free or subsidized house, education, transport etc. If we add the value of the above benefits into the monetary wage or Subtract other expenses from it, then we get 'real wage'.

 

Theories of Wages - - - - - - - -

 

Many thoughts have emerged in economic history about how wages are determined. 

There are some theories of Wages like - - - - 

1.  Wage Fund Theory

2.  Subsistence Theory of Wages

3.  Residual Claimant Theory

4.  Marginal Productivity Theory

 

1.  Wage Fund Theory - - - - - - - -

 

J.S. Mill is created with developing this theory. According to him, a part of capital is used for payment of wages to the Labour, till the production process is not complete. This capital has been accumulated from past savings. So some part of the savings would be used for payment of wages. This part was called the which fund. Labour would be paid wages, out of his first fund. In a way, this wage fund shows the demand of labour. If the wage fund would be high, wage rate is likely to increase and vice versa.

 

Criticism of Wage Fund Theory - - - - - -

This theory is an incomplete theory. It does not explain how the wage fund would be determined and how payment would be made out of it? 


The payment received in exchange of providing labour is called a wage. 

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