Theories of Wages


Whether you are a student of economics or you are just looking for some interesting articles, there are a few different aspects of wages that you should consider. For instance, you should take a look at the theory of Adam Smith, which states that the real value of money is less than the amount that can be earned from it. You should also take a look at the theories of Bargaining and Subsistence, which talk about how wages are determined. In addition, you should learn about bonuses, commissions, and fringe benefits.

Money wages vs real wages

Whether you’re looking to get a raise or just want to know what your actual wage rate is, it’s important to understand the differences between money wages and real wages. Both are important in determining a person’s standard of living.

A money wage is a form of compensation that reflects a person’s pay for an hour, week, or month of work. These wages are paid in addition to other benefits. These may include extra payments, pension rights, family allowances, and the use of company cars.

On the other hand, real wages are a more comprehensive representation of a person’s pay. They take inflation into account and also show the purchasing power of the amount of money an individual is able to spend.

Adam Smith’s theory of wages

Among the many claims made by modern economists about Adam Smith’s theory of wages is that his theory of wages applied to perfect market economies. It has nothing to do with the current crisis in state-managed capitalist economies. However, the notion that it does is simply an ideological alibi.

Smith believed that the market operated unhindered and that the allocation of resources would be a matter of market forces. The price of labor, which is a factor in determining the material well-being of a population, is determined by market processes.

According to Smith, the long-term process of socioeconomic development is driven by the division of labor. The result is that the productivity of labor is increased, and overall prosperity increases. In addition, the standard of living of the poor is expected to increase in the future.

Bargaining theory

Various theories of wages are used to explain the behavior of labor markets. The basic idea of the bargaining theory for wages is that there is no single factor that determines wages. Rather, it is the result of a bargaining process between the management and labor.

In the past, economists have suggested that wages are determined by a variety of factors. The four most important are: land, labor, capital, and entrepreneurship. However, these theories are not applicable to every situation.

In the 18th century, economists proposed several theories regarding the concept of wages. One such theory is the marginal productivity theory. According to this theory, workers receive wages based on the product minus the amount of rent and interest.

Subsistence theory

Various theories have been put forward in an attempt to understand the genesis of wages. These theories can be categorized into behavioral, economic, and process theories. In a nutshell, each of these theories gives guidelines on how to determine the rates of wages.

The Subsistence theory was developed by the English economist David Ricardo in 1817. It states that a wage should be sufficient to meet the needs of the worker and his family. This was based on the Malthusian theory of population. It also assumed that food production would be subject to the law of diminishing returns.

Several other theories were developed by economists like Francis Walker and Adam Smith. These theories focused on the four factors of production. These included labor, land, capital, and entrepreneurship.

Bonuses, commissions, and fringe benefits

Whether you’re an employer looking to recruit the best talent or a company that’s just starting out, bonuses, commissions, and fringe benefits for employees are a great way to motivate your team. Putting the right compensation plan into place can improve your company’s overall morale and result in larger-than-expected results.

The amount of compensation you offer to your employees is based on several factors. Among them are the size of your company, your budget, and your sales needs. If you’re hiring a salesperson, the right bonus or commission structure will help you incentivize them to sell more. If you’re looking to hire a non-sales person, however, you may need to consider other types of compensation.