Classical Theories of Wages
Classical Theories of Wages
Classical Theories of Wages
Generally, the prices of factors are determined by the interaction of demand and supply, which
should also be applicable in determining the wages for labor.
However, the theory of demand and supply is not fully applicable while determining wages for
labor.This is because labor as a factor of production is distinct from other factors of
production.
Workers being paid a just wage is a major element of the social teaching and is something
that all Catholics need to understand and be supportive of as it is directly connected to the
respect for human dignity that underlies all of the social teaching.
3. WAGES FUND THEORY
As per the wage fund theory, the wage level depends on the quantity of the wage fund and
the number of people who are employed. Wage fund refers to the amount of capital that an
employer keeps for paying wages to labor.
The level of wages can be determined with the help of the following formula:
Level of wages = Wage fund/Number of employees
This equation implies that wages are directly proportional to wage fund and are inversely
proportional to number of employees. Therefore, wages increase when wage fund increases or
number of employees decreases.
However, according to the wage fund theory, wage fund is constant. Therefore, the wage level
would increase only by reducing the number of employees. According to this theory, trade
unions do not have any control on the level of wages.