Wages and Theories of wages Kamal Singh Lecturer in Economics GCCBA-42, Chandigarh

Wages are remuneration paid to labor in return for the services rendered. Benham has defined the term wages in a restricted sense. According to him, a wage may be defined as a sum of money paid under contract by an employer to a worker in exchange for service rendered.

Definition of Labor: The term 'labor', in Economics is used in a wider sense. It includes the work of skilled or unskilled, professional or amateur, salaried or non-salaried persons, etc., who put for the efforts mentally or bodily in return for some reward. The reward may be paid in cash or in kind or in both. The unit of time for the payment of remuneration may be day, a week, a month, or a year.

Marginal Productivity Theory of Wages Under Perfect Competition: Wages in perfect competition tend to be equal to the marginal net product of a labor. By marginal net product of a labor is meant net addition or net subtraction made to the value of the total produce of a firm when one unit is added or withdrawn from it".

Criticism on Marginal Productivity Theory of Wages: The theory of marginal net product of wages has been criticized on the following grounds: (i) The theory assumes that there is perfect competition, among the entrepreneurs and the wage earners while in the real world there is no such perfect competition. (ii) The theory assumes that all units of labor engaged are perfectly homogeneous but the fact is otherwise. (iii) The theory also assumes perfect mobility amongst the labor but the assumption does not held good in the real life. (iv) The theory emphasizes on the demand side of the problem and makes a wrong assumption that the supply of labor remains constant.

Modern Theory of wages The modern economist are of the opinion that 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 usual demand and supply analysis.

Demand for Labor: There are various factors which influence the demand for labor. These factors in brief are as under:- (i) Demand for labor is a derived demand. The demand for labor is not a direct demand. It is derived from the demand for the commodities and services it helps lo produce. If the demand for a product is high in the market, the demand for labor producing that particular type of product will also be high. In case, the demand for a commodity is small, the demand for that labor will also be low. (ii) Elasticity of demand for the product. If the demand for a particular product is inelastic, the demand for the type of labor that produces this product will also be inelastic. The demand for labor will be elastic, if cheaper substitutes of the product are available in the market or the demand for the commodity it produces is elastic. (iii) Proportion of labor cost to total cost. If the wages of workers account for only a small proportion to total cost of a product, then the demand for labor will tend to be inelastic. In a capital intensive industry, for instance, a slight increase in the workers wages with have little effect on the unit cost of product; So, the rise in wages will not reduce the demand for labor. (iv) Availability of substitutes for labor. If the substitutes of labor producing a particular product are easily available in the market, the demand for labor will then be elastic.

Supply of Labor: Supply of labor is the number of hours of work which the labor force offers in the factor market. The supply of labor for the entire economy is influenced by various factors such as wage rate, size of population, age composition, availability of education and training, the length of training period, provision of opportunities for women to work, the social security programmes etc., etc.

Determination of Wages