Labour & Wages

Labour & Wages - Hemant Mahara

1. Presentation on: Labour & wage Presenter: Hemant Mahara

2. Labour Labour  is a measure of the work done by human beings Labour would mean any work, manual or mental, which is done for a reward . Marshall defined labour as “any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work ” Labour is all that physical and mental activity which produces goods and services.

3. Characteristics of Labour Labour is original and indispensable factor of production Labour is an active factor of production Labour is perishable than any other commodity Labour cannot be separated from the labourer Labour is less mobile  Labour supply is inelastic

4. A labourer sells his labour and not himself Labour has weak bargaining power Labour is both the beginning and the end of production Difference in Efficiency Labour cannot be engaged continuously in production like machine Labour creates capital  It is difficult to calculate the cost of production of labour

5. wage A wage is monetary compensation (or remuneration, personnel expenses, labour) paid by an employer to an employee in exchange for work done Rewards given to the workers, whether mental or physical are termed as wages in economics Wages are the most common earnings of people. Perceived by workers, clerks, managers, and employees in general, wages and salaries constitute the core element in income for the majority of active people. Similarly, many pension schemes are based on wage levels and dynamics.

6. Theories of wages Marginal Productivity Theory of Wages The  marginal productivity theory of wage states that the price of labour, i.e., wage rate, is determined according to the marginal product of labour. This was stated by the neoclassical economists, especially J. B. Clark, in the late 1890s The term marginal product of labour is interpreted here in three ways: 1. Marginal physical product of labour (MPP L ) 2. Value of the marginal product of labour(VMP L ) 3. Marginal revenue product of labour(MRP L )

7. When marginal product of labour is expressed in money terms we obtain VMP L . MRP L  is the change in total revenue following a change in the employment of labour. Marginal productivity theory of wage states that wage of labour equals VMP L  (= MRP L ). Employer will employ labour up to the point until market wage equals labour’s value of the marginal product(VMP ) and marginal revenue product (MRP ). Assumptions of  Marginal Productive theory of wages Perfect competition prevails in products market and in labour market . Law of variable proportions operates. The firm aims at profit-maximization . All labourers are homogeneous and are divisible. Labour is mobile and is substitutable to capital and other inputs . Resources are fully employed.

8. Limitations of Marginal Productivity Theory of Wage In the real world, perfect competition does not exist—both in the product market and in the labour market . Labour can never be homogeneous— some may be skilled and some may be unskilled. Perfect mobility of labour is another unrealistic assumption The marginal productivity theory of wage ignores the supply side of labour and concentrates only on the demand for labour Full employment of resources is another unrealistic assumption   This theory, in fact, is not a wage theory but a theory of employment Finally, this theory ignores the usefulness of trade union in wage determination.

9. Modern theories of wages Logical extension of marginal productive theory. Wage rate is determined by the interaction of the forces of demand and supply of labour in given market situations Also called “Demand & supply theory”. Demand of Labour : The demand for labour reflects partly labourers productivity and partly the market value of the product at different level of production Supply of labour : The supply of labour depends on:- The number of workers of a given type of labour which would offer themselves for employment at various wage rate The number of hours per day or the number of days per week they are prepared to work.

10. Fig.3.Demand of Labour Fig.4. supply of labour