![]() ![]() (4) Increase in Wages do not Affect the Profit: ![]() But in actual practice we see that the demand for labour depends upon the demand for various goods and services which are produced by the labour. The theory assumes that the demand for labour depends upon the wage fund. (3) The Demand for Labour is a Derived Demand: The differential wage rate is an example of this factor which has not been taken into consideration by the theory. But in actual practice we see that by increasing the efficiency of workers we can raise their wages. The theory assumes that the wage fund is fixed and wage rate can be increased only by reducing the number of workers. But in actual practice such fund is not realistic and it is an imaginary concept. The theory assumes that there is a fixed wage fund created by an entrepreneur. The wage fund theory has been criticised as given below: The theory points out that the wage rate cannot be raised through the trade unions in an organisation. Thus the wage rate can be increased by reducing the number of workers. The wage fund is based on the savings of an entrepreneur and generally it is fixed during a given period. The wage rate can be calculated with the help of the following formula:Īccording to this theory, wage rate can be increased in two ways-firstly, by increasing the wage fund and secondly, by reducing the number of workers. Thus, there is inverse relationship between the wage rate and number of workers. More the workers low will be the wage rate and less the number of workers high will be the wage rate. ![]() Wage fund being fixed the wage rate depends upon the number of workers. An entrepreneur keeps a part of his capital for the payment to worker which is called wage fund and this fund is fixed. The population means the number of workers employed. According to this theory wage rate is determined by the ratio of wage fund and the population. The theory was developed and propounded by Professor J.S. But in actual practice there is frequent change in wage rate while the standard of living does not change frequently. (3) The theory explains that the standard of living remains constant and the wage rate should also remain constant. The higher standard of living of workers will motivate them to save something and their bargaining power with the employers will increase. ![]() If the workers have attained a high standard of living they will try to maintain it and more work and less leisure is preferred. The theory is based on the assumption that the standard of living will maintain the efficiency of workers high and high wage rate is desirable from the point of view of high productivity of workers. Contrary to it, if the wage rate is less than the standard of living there will be less marriages, less children and the supply of labour will be reduced thereby the wage rate will increase to the standard of living of workers. If the wage rate is higher than the standard of living of workers there will be more marriages, more children and the supply of labour will increase and thereby the wage rate will be brought down to the standard of living. The wage rate should be suffice to maintain a given standard of living of a worker to which he is accustomed. The wage rate should be determined on the basis of the minimum needs of workers including the necessaries, comforts and luxuries of life to whom workers have accustomed. The wages change according to change in the standard of living of workers. According to this theory the wage rate should be determined on the basis of standard of living of workers. This theory is an improvement over the subsistence theory of wages. Thus, the theory is outdated theory of wages. ![]()
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