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Briefly describe four theories used to determine wages of labourers

      

Briefly describe four theories used to determine wages of labourers.

  

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Abdullahi
1. Residual Claimant Theory

According to this theory, a labourer receives what remains after the payment of rent, profits, taxes and interest out of the national income. This theory is offered by an American economist called Mr. Walker. He says that wages equal the whole product less rent, interest and profit. This implies that the wages of a working man are ultimately coincident with what he produces after the deduction of rent, taxes and the interest on capital.

2. Marginal productivity theory

Marginal productivity means the net addition or net subtraction caused in the total production by employing or withdrawing one unit of production. A producer always compares the marginal product value with the price of a marginal input unit. This theory states that price of each factor of production tends to be equal to its marginal productivity.

3. Subsistent theory

According to this theory, labour is considered as a commodity whose price is determined by cost of production. It looks at the minimum subsistent expenses required to supply the worker and his/her family. The proponents of this theory argue that wages tend to settle at the level sufficient to maintain the worker and his/her family at a minimum subsistent level.

4. Wage Fund Theory

The theory is associated with Adam Smith and J.S Mill. Wage fund is that amount of floating capital which is set apart by employers for paying wages to the labourers. The average wage rate is determined by dividing the wages fund by the total number of workers employed. If we want to increase the rate of wages, there are two ways to do that, increasing the fund or decreasing the supply of labour.
Dullayo answered the question on May 9, 2018 at 10:22


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