Why a Separate Theory of Wages?
It is demand and supply relationship or scarcity in relation to demand, which explains all values whether values of commodities or values of services of the factors of production. Why should we then have a separate theory of wages? The ordinary theory of prices, i.e., demand and
supply theory, is not fully applicable to the determination of wages for the following reasons:
(i) The demand for goods depends on their utility to the purchaser. whereas the demand for labour services depends on their productivity (and not utility) to the employer. Hence, demand for the labour – needs a special treatment.
(ii) The human element in the labour market deserves special consideration. The labourer and the labour services are inseparably tied up; hence the importance of the human element.
Uii) The peculiar institutional and behavioural factors affect bargains in the labour market. For instance. in the rural areas of~kward economics, wages arc fixed by custom instcadof competition.
(il” Certain peculiarities of labour, which distinguish it from a commodity, also necessitate a separate! theory of wages. These peculiarities are :
(a) Labour has weak bargaining power as against lll.epowerful employer. Hence, the actual wage is less than what a worker may be entitled to by his productivity.
(b) Labour is most perishable. Hence, the worker has to accept a lower wage than to what he may be entitled. He has no staying power and must accept what is offered.
(c) The changes in the price of labour react rather curiously on its supply. It amy be that when wages have gone up, the supply of labour may decrease instead of increasing, unlike what happens in the case of a commodity. The worker may prefer leisure III work. That is why supply oflabour may be a backward bending curve. up. Nor call the supply of labour be decreased when there is unemployment. Conclusion. In view of tile above peculiarities of labour, it becomes necessary to formulate a separate theory of wages. All the same, it is well to remember thatwages being a price (of labour services). tile fundamental principle of pricing, i.e.• the interaction of the forces of demand and supply, applies to tile wage determination also. TIlt’ various theories of wages only differ in the assumptions regarding the basic conditions of demand and supply
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