Wage fund theory – wage theories - compensation management - Manu Melwin Joy

This theory was developed by Adam Smith and was further expounded by J.S.Mill.
J.S. Mill said that wages mainly depend upon demand for and supply of labour or the proportion between population and capital available.

1. Wage Fund theory – Wage Theories Compensation Management

2. Prepared By Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations. Manu Melwin Joy Assistant Professor Ilahia School of Management Studies Kerala, India. Phone – 9744551114 Mail – [email protected]

3. Wage Fund theory This theory was developed by Adam Smith and was further expounded by J.S.Mill .

4. 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. It is the Wages Fund which determines the demand for labour .

6. Wage Fund theory However, the supply of labour can’t be changed at a given time. But if the supply of labour increases along with increase in population, the average wages will go down.

7. Wage Fund theory Therefore in order to increase the average wages, firstly, the Wages Fund should be enlarged, secondly, the number of workers asking tor employment should be reduced.

8. Wage Fund theory This theory is criticized on the following grounds: (a) This theory does not explain differences in wages at different levels and in different regions. (b) It is not clear from where the Wages Fund will come.

9. Wage Fund theory This theory is criticized on the following grounds: (c) No emphasis has been given to the efficiency of workers and productive capacity of firms. (d) This theory is unscientific as Wages Fund is created first and wages are determined later on. But in practice, the reverse is true.