7/30/2019 wagetheories-111005034615-phpapp01 (1)

1/58

ECONOMIC & BEHAVIOURAL

THEORIES OF WAGES

7/30/2019 wagetheories-111005034615-phpapp01 (1)

2/58

Wage Determination Theories

Acc. To Prof. J. Dunlop the history of wagetheory may be divided in to 3 periods :

1. Up to 1870 , Which was dominated by

WAGE FUND THEORY2. 1870-1914 : THEORY OF MARGINAL

PRODUCTIVITY

3. 1914- till date : Process of Collectivebargaining & Keynesian Equity & theGeneral Wage Level & Employment.

7/30/2019 wagetheories-111005034615-phpapp01 (1)

3/58

Subsistence Theory by David

Ricardo(1772-1823)

Also called as Iron Law of Wages

Assumptions

1. Law of diminishing returns apply to theindustry(diminishing returns (also called diminishing marginal returns) is the decrease in the marginal(per-unit) output of a production process as the amount of a single factor of production is increased, while

the amounts of all other factors of production stay constant.)

2. Population increases or decreases on the

basis of subsistence wages paid to the

workers.3. Labor demand constant

4. No wage differentials.

http://en.wikipedia.org/wiki/Marginalismhttp://en.wikipedia.org/wiki/Production_%28economics%29http://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Production_%28economics%29http://en.wikipedia.org/wiki/Marginalism

7/30/2019 wagetheories-111005034615-phpapp01 (1)

4/58

Subsistence Theory by David

Ricardo(1772-1823)

This theory states that The laborers are

paid to enable them to subsist &

perpetuate the race without increase or

diminution

7/30/2019 wagetheories-111005034615-phpapp01 (1)

5/58

ac ua wage eveadjusting to Subsistence level

Prosperous

Worker (2)

Less food ie Deaths(6)

Wage level >

Subsistence(1)

Fewer Deaths (3)

Labor increase

In supply (4)

Labor demand