Early theories of wages

Early theories of wages:

1. The subsistence theory of wages:

According to this theory, the wages which are paid to a worker should be just adequate to cover his bare requirements of subsistence. When the workers are paid less than the subsistence wage, there will be starvation and death and it will outcome in shortage of supply of labor.

Criticism:

The major criticism against the theory is that it depends on the supposition that an increase in wages will outcome in an increase in population. Man is distinct from an animal. Besides bare requirements, he requires some comforts. This theory does not take note of that. And it is one sided. This ignores the forces performing on the side of demand. This theory depends on bad ethics.

2. The standard of living theory:

This theory states that wages depend on the standard of living of workers.

Criticism:

There is no doubt which the standard of living theory is an enhancement on the subsistence theory. This is true that there is relationship between standard of living and wages. However it is rather hard to say that is the cause and which is the outcome.

3. The Wages Fund Theory:

According to Wages Fund Theory, “wages based on the proportion among population and capital”. The word “capital” in the context refers to the fund set apart from payment of wages. And the term ‘population’ refers to workers. When the supply of workers raises, wages will drop and vice-versa.

Criticism:

The theory supposes that an increase in wages will outcome in an augment in population. However there is no direct relationship among the two. Moreover, it states that when wages rise, profits will drop. This is not right since during periods of good trade, both wages and profits will increase.


4. The Residual Claimant Theory:

According to this theory, wages “equivalent to the whole product minus rent, interest and profits” (by Walker).
In another words, the theory states that wages are paid out of the residue which is left over after making payment for rent, interest & profits.

Criticism:

The main criticism alongside the theory is that it considers wages as the residual payment. However wages are in the nature of advance payment and they include to be paid first. Generally, profits are taken at ending.

 

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