wages revision

8/8/2019 Wages Revision

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Compiled by Madhav Verma


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` Wages-Meaning,

` Nominal and Real Wage,

` Factors Determining Real wages,

` Marginal Productivity Theory of Wages,` Discounted Marginal Productivity Theory,

` Modern theory of Wages,


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` According to Benham A wage may be definedas a sum of money paid under contract by anemployer to a worker for the services

rendered.` According to Prof. J.L Hanson Wage is a

payment to a labourer for its assistance toproduction.


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` The payment made for the services of labour iscalled wages.

` The amount of money paid is called the money

wages or the___________.` The amount of goods and services which the

labourer can get with his money wage, andotherwise ,is called the________.


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` Nominal wage is a wage in_________. Real wage ismeasured in terms of __________.it will purchase.

1. What will happen if prices rises and your money

wage that is nominal wage remain same?

If prices rises and your money wage remain constant, you will beable to buy less with the same money

that means your real wages has fallen/risen.

Thus, real wages are obtained after adjusting for inflation, that is,for rise in prices in the economy.


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`

The term real wage is also sometimes used tomean the money wages plus the ________benefitswhich workers receive in some jobs.

Q. Why do you think a college professors with equalqualification and skills may prefer lower moneywage rates as compared to the persons employedas business executives in private firms?

It may be because teaching in college or university offers

some non-monetary benefits such as flexible workinghours, pleasant surroundings, opportunities for advancementetc. Thus the real wages of college professor will be hismoney salary plus the above mentioned non-monetarybenefits which he gets in the teaching profession.


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` The real wage of labourer depends on thefollowing factors:

A

BC

D

E


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________=_________

` According to thistheory wages tend toequal the_________

` i.e., The additional

product which theemployer gets by addingone more units oflabour. This theory isanalogous to the

marginal utility theoryof value.


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It may be pointed out that Marshall and otherorthodox writers do not assert that wages aredetermined by marginal productivity. They only

claim that there is a functional relationshipbetween the rate of wages paid ,marginalproductivity and the number of personsemployed. Therefore, marginal productivity is

the measure of the rate of wages, not itsdeterminant.


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` The marginal productivity theory throws intoclear light one of the forces that influencewages(the demand side).Wages are also

influenced by the factors which govern thesupply of labour.


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` Discounted marginal productivity theory statethat what tends to equality with wages is notMVP, but Discounted MVP or DMVP.

Wage=_______` Here___________ is recognized;` It is argued that all values receivable in future

be discounted by__________, even the valuesof marginal product of labour, or any other

factor, When such value cannot be used inconsumption until an elapse of time has takenplace.


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` Problems with marginal productivity theory.` Deciding upon__________.(interest rate ormarket rate)

` Deciding on the________.` Deciding the _________or product orimmediate result of present valuableactivities.


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` According to many modern writers, the wagerate depends on the demand and supply forlabour.

` Demand:- Labour is demanded because of itsproductivity. The employers can never pay wageshigher than the marginal product of labour.Generally speaking the larger the number oflabourers employed, the less is the marginal

product. This follows from the principal of lawof diminishing marginal productivity which is aconsequence of law of variable proportions.


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` Supply:- the supply of labour depends on itssupply price. At a particular price a certainnumber of laboures, will be available foremployment. Higher wages will generally lead to

an increased supply of labour. Lower wages willgenerally lead to diminished supply. The price,at which a certain number of laboures isavailable, is the supply price of that amount of

labour. The supply price of labour depends onthe standard of living of workers, the strengthof trade unions and various other factors.


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` Equilibrium:-if we consider a particular group oflabourers e.g., Carpenter the equilibrium rateof wage for this group of worker will be given

by the point of intersection of demand andsupply curve .This rate will naturally depends onthe shape of the demand and supply curves.


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` The rate of wages will tend to reach equilibriumat the point where the demand price and thesupply price are equal .If all the people were

exactly equal, as regards their ability, theirwage rate will be the same.


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` In real life perfect competition does not exist.The wage rates tend to fluctuate between themaximum set by the marginal productivity of

labour and the maximum set by the marginalproductivity of labour and the minimum set bythe standard of living below which the labourwill not accept employment.


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` The actual rates are determined between thesepoints according to the relative bargainingpower of the workers and the employersorganizations. Generally speaking, Between the

workers and the employers the latter are morepowerful. Strikes are difficult because workerslacks reserve power. As a rule, therefore, wagerates tend to approach the minimum rather

than maximum .Nowadays trade union havebecome very powerful. therefore the wage rateare not so low now.


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` The Keynesian theory of employment throwsdoubt on the demand and supply theory ofwages. The Keynesian theory shows that thedemand for the labour depends in the part upon

the level of income which depends in the partupon the level of employment which is one ofthe variables supposed to be determined bythe demand and supply of labour. So the

determination of wages cannot be isolatedfrom the numerous variables which determinesthe level of employment and income.


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wages revision

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