Question

What is meant by Residual Claimant Theory of Wages in Economics?

Critically illustrate Residual Claimant Theory of Wages in Economics? 

Answer 1

 

Residual Claimant Theory - - - - - - -

American economist F. A. Walker is credited with developing this theory. According to him, the revenue from a business is distributed in rent, wages, interest and profit. All claimants, other than labour, are very strong and are able to determine in advance, the payments to be received by them. Consequently, the amount left after other factors have been paid, is distributed to the labour as wages. In this way, the labour can increase its wages only by increasing its productivity and efficiency. Higher the productivity of labour, higher would be the wage rate, according to this theory. 

 

Criticism of Residual Claimant Theory - - - - - - - - -

 

According to modern economists, the entrepreneur is the claimant of residual income, not the Labour, because the wage rate is a pre-decided payment. It is generally not related to profit or loss.

Inspite of this criticism, it is worth noting that many a times the bonus received by labour is dependent on Profit. If profits are high, more bonus will be received, otherwise not. So there is some truth in this theory. 

American economist of F. A. Walker is credited with developing this theory.