Subsistence TheorySubsistence Theory

• David Recardo – Year 1817

• Deals with Population rather than Labour

• Each member of the society be provided enough food, clothing, and shelter to continue to exist.

• Iron Law of Wages• Thomas Num & Malthus

influence

More thanSubsistence

Level

Procreation

Lowering thewages

Wage Fund TheoryWage Fund Theory

• John Stuart Mill ---- 1930

• The wages of an employee are paid from the fund, which presumably has been accumulated by the entrepreneur from operations of the previous years.

Residual Claimant TheoryResidual Claimant Theory

• Francis A. Walker – enlarged this theory- “Theory of Political Economy”- 19th Century

• Wages are nothing but the residue of total revenues after deducting all other legitimate expenses such as rent, taxes, interest and profits.

The marxian Theory of Surplus ValueThe marxian Theory of Surplus Value

• This theory is inversion of Residual Claimant Theory

• Labour is the sole source of economic value and therefore labour should exercise the prime claim on revenue.

• Exploitation

• Surplus between labour cost and product cost should be paid to the labour.

National Income TheoryNational Income Theory

• John Maynard Kenyes ---- 1930• Full emplyment is the function of National

Income• National Income, in turn, is equal to the

total of consumption plus private and public investment.

• If the national income falls below a level that commands full employment --- Govt. should manipulate the said 3 variables.

Neo Keynsian Distribution TheoryNeo Keynsian Distribution Theory

• Full employment

• General wage level in the long and short terms.

• Entrepreneurial decisions can determine the general level of wages in the short run

• Wages are determined by bargaining between capitalist and the employees

Consumption TheoryConsumption Theory

• In 1913- Ford – 5$ per day wages-Automobile- double than the competitors.

• More wages- more consumption- more demand-more employment

Investment TheoryInvestment Theory

• H.M. Gitelman

• Employees compensation is determined by the rate of return on that employee’s investment.

• Here investment means education, training and experience.

Institutional Wage TheoryInstitutional Wage Theory

• Level of Compensation---- empirical & quantitative basis

• Region cum industry comparison

• Other comparisons

Supply and demand theorySupply and demand theory

• Perfect Competition is the main consideration

• Wages are determined based on demand and supply of labour

Micro TheoriesMicro Theories

• Marginal Productivity Theory

• Productive Efficiency Theory

• Bargaining Theory of Wages