Unit-5 Principles of Wages POE | BBA First Year 2023

Unit-5 Principles of Wages POE | BBA First Year 2023–  Hello student welcome to the pencilchampins.com website. This website Provide Unit-5 Principles of Wages Principle of Economic BBA Notes Year 2023. This website helpful for all student. Thankyou for visiting.

 Definition 3Principles of Wages

• Workers are paid wages or salaries for the work they do. Thus, returns to workers should be in accordance with their efforts and the wage standards prevalent in the industry.
• There are many theories of salary determination propounded by different scientists and beliefs. are based on diverse

Principles of Salary Determination

1. Living Wage Principle

• This theory was propounded by David Ricardo and called this theory “Iron Law of Pay”. It is based on the assumption that the law of diminishing returns applies to industry, and increases in population.
• If labor is paid below the subsistence level, they will die of malnutrition, disease or hunger and hence, the number of workers reduces. On the other hand, if wages increase above the subsistence level, the number of workers will be attracted to reproduce and thus, the wage rate decreases with the increase in workers. Thus, there is a subsistence level, which remains constant and neither increases nor decreases.

2. Pay Fund Theory

• This theory was developed by Adam Smith, and is based on the assumption that salaries are paid from pre-determined money or funds, which wealthy individuals have in surplus as a result of savings. The amount of wages paid to the employee depends on the size of the fund. 
• This theory was further propounded by J.S.Mill and according to him the wage fund is fixed, and wages can be determined on the basis of demand and supply of labour. And thus, the size of the fund decides the demand for labour. To get increased wages, the number of workers will have to be reduced and funds will have to be increased.

3. Surplus value theory

• This theory is given by Karl Marx, and according to him, like other commodities, labor is also an article of commerce and can be purchased by paying subsistence price.
• The price of a product is determined by the quantity of time; A labor is devoted to its production. And the proportion of time spent by labor on work is very less and hence, minimum price is paid and the excess amount is used for other expenses.

4. Residual Claimant Theory

• A Walker propounded this theory and according to him there were four factors of production. Land, Labour, Capital and Entrepreneurship.
• Wages are amounts given in exchange for the quantity of production and thus are paid after all other factors have been paid. Thus, the salary is considered a residual claimant, and is calculated as follows:
• Wages = Total Production-(Rent+Interest+Profit)

5. Marginal Productivity Theory

• This theory is given by Phillips Henry Wicksteed and John Bates Clark, and it is based on the assumption that wages are determined on the basis of the contribution of the last worker to production i.e. marginal product.
• This theory holds that wages depend on the demand and supply of labor. As far as marginal productivity is equal to wages paid, a firm will continue to employ more labor.

6. Bargaining principle

• This theory is given by John Davidson and according to him wages are determined on the basis of bargaining capacity of workers or their unions and employers. If the trade union is strong, wages will be high, and if the employer is powerful, wages will be low.

7. Behavioral theory

• Many behavioral scientists (e.g. March and Simon, Robert Dubin, Eliot Jacques) have presented their research on wage determination. According to him, there are many factors like concern of the employer for the workers, strength of unions, size and reputation of the company etc. which determine the amount of wages to be distributed among the workers.
• Thus, the firm can adopt any method of wages depending on the nature of the work and the contribution of the employee towards the accomplishment of the work.

Pencilchampions.com