However, from a macroeconomic perspective, minimum wage laws may actually increase employment! The bargaining theory is very attractive to labour organizations, for, contrary to the subsistence and wages-fund theories, it provides a very reason for the existence of unions: simply put, the bargaining strength of a union is much greater than that of individuals. On the contrary, if workers are paid less than subsistence wages, the number of workers will decrease as a result of starvation death; malnutrition, disease etc. Mobility of labour :- The supply of labour also depends upon the mobility of labour. Elements of a subsistence theory appear in , where Smith wrote that the wages paid to workers had to be enough to allow them to live and to support their families. And the proportion of time spent by the labor on work is much less and, therefore, paid a minimum price and the surplus amount is utilized for the other expenses. He integrated the value theory and the monetary theory through the theory of output.
This theory assumes that wage depends on demand for and supply of labor. The , advanced by and other classical economists, was based on the population theory of. Therefore, several modern economists together worked and gave a theory for determining the level of wages. According to the classicists, what is not spent is automatically invested. This is because labor as a factor of production is distinct from other factors of production. For example, when consumer demand for certain products increases, companies must increase their production output to meet this demand. Purpose Federal governments use minimum wage laws to ensure a basic quality of life among all citizens within its borders.
Out of them, some important theories of wages are discussed here. Residual Claimant Theory : Residual claimant theory was given by Walker, an American economist. Workers are not, in fact, homogeneous, nor are they interchangeable. The theory gained prominence during the of the 1930s, when it became apparent that lowering wages might not increase employment as previously had been assumed. In theory, wage discrimination is outlawed, though it may manifest itself in other forms, such as some types of workers getting few opportunities to be promoted to higher pay scales.
How much and on which basis wages should be paid to the workers for services rendered by them has been a subject matter of great concern and debate among economic thinkers for a long time This has given birth to several wage theories, i. But Keynes did not agree with this view. Behavioural Theories of Wages : Based on research studies and action programmes conducted, some behavioural scientists have also developed theories of wages. It presents a dark picture of the future of the society. The poor lack money to purchase consumption goods. These factors in brief are as under.
Fails to determine Wages: This theory only guides the employer to employ workers up to the level where their marginal productivity equals price. Thus, the subsistence theory seemed to fit the facts. All labourers are equally efficient. . Thus the natural price of labor is that price which is necessary to enable the laborers one with another to subsist their race without either increase or decrease. Population increases or decreases on the basis of subsistence wages paid to the workers.
Let us now discuss in brief as to what we mean by demand and supply of labour. A brief treatment of wage theory follows. It is therefore assumed that a decline in wages will reduce consumption and that this in turn will reduce demand for goods and services, causing the demand for labour to fall. The entrepreneur will continue hiring the worker up to the point at which the cost of employing a worker is just equal to the marginal revenue product of the labour. Piece rates are paid according to the amount of work accomplished.
If there is overproduction and unemployment, the automatic forces of demand and supply in the market will bring back the full employment level. Dawdling employees can also lower morale, since harder working employees resent being paid the same as the dawdling employees. Neither the upper nor the lower limit is fixed, and either may move upward or downward. We should increase the fund or we should decrease the supply of labour. Arise when the workers in the same occupation and in the same area but in different industries are paid different wages. But, in practice, it is difficult to have all the relevant information.
The purpose of performance pay is to attract the most highly qualified and productive workers, or as economists like to say, workers with highest marginal revenue productivity. Performance pay is also used to motivate workers to work. The requirement for occupational licensing may also be an impediment to moving to a different area for higher wages. When unemployment is high, arguably firms gain more monopsony power. Change is the law of nature, though it may come gradually. Semiskilled workers generally receive more than unskilled workers, and skilled workers receive more than semiskilled or unskilled workers. Many employees paid a flat wage rate often linger or dawdle, which lowers their productivity and the employer's.