The wage–fund doctrine is a concept from early economic theory that seeks to show that the amount of money a worker earns in wages, paid to them from a fixed amount of funds available to employers each year (capital), is determined by the relationship of wages and capital to any changes in population.
Who gave wage-fund theory?
Adam Smith
1. Wages Fund Theory: This theory was developed by Adam Smith (1723-1790). His theory was based on the basic assumption that workers are paid wages out of a pre-determined fund of wealth.
Who is credited for formulating the wage-fund theory of wages?
The wage-fund theory of wages:- The wage-fund theory was first suggested by Adam Smith but the entire credit for formulating the theory goes to J. S. Mill.
What is the current theory of wages?
According to the modern theory of wages, wages are the price of services rendered by a labor to the employer. As products the prices are determined with the help of demand and supply curve. Similarly, the wages (prices of services rendered by labor) is also obtained with the help of demand and supply of labor.
How wages are determined?
According to economic theory, workers’ wages are equal to the marginal revenue product of their labor. If one employee is very productive he or she will have a high marginal revenue product. In reality, wages are determined not only by one’s productivity, but also by seniority, networking, ambition, and luck.
How did the wage fund theory of Economics work?
The wage-fund theory held that wages depended on the relative amounts of capital available for the payment of workers and the size of the labour force. Wages increase only with an increase in capital or a decrease in the number of workers.
What does J’s Mill say about wage fund theory?
Wage Fund theory • J.S. Mill said that wages mainly depend upon demand for and supply of labour or the proportion between population and capital available. 5. Wage Fund theory • The amount of Wages Fund is fixed. Wages can’t be increased without decreasing the number of workers and vice versa.
How are wages affected by the wage fund?
Wages, thus, cannot rise unless either the wage fund increases or the number of workers decreases. But since the theory takes the wage fund as fixed wages could rise only by a reduction in the number of workers. It would appear, therefore, that according to this theory, the efforts of trade unions to raise wages are futile.
What was the purpose of the wage fund doctrine?
The wage–fund doctrine is a concept from early economic theory that seeks to show that the amount of money a worker earns in wages, paid to them from a fixed amount of funds available to employers each year ( capital ), is determined by the relationship of wages and capital to any changes in population. In the words of J. R. McCulloch,
