Wages

6 Key excerpts on "Wages"

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  eBook - ePub

  Money

  A Theory of Modern Society

  • Nico Stehr, Dustin Voss(Authors)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  Moral compensation would generally refer to earnings that acknowledge and reward the social status of the worker. Similarly, major societal conditions, for example, technological changes, population dynamics, major economic crises such as the Great Depression, or wage determination under conditions of social and political upheaval as compared to Wages negotiated in contexts of relative societal and political calm are relevant factors explaining the price of labor. Typically, all these factors that constitute elements of the price of labor are co-determinants of the value of labor. 35 It is evident therefore that a determination of the precise value of labor is very difficult if not highly complicated. In any event, our discussion of the price of labor as a factor of production will start with a presentation of some of the most influential theories surrounding the issue, many of which continue to be relevant to this day for a discussion of the price and value of labor. We will first turn to Adam Smith’s theory of Wages. Smith’s central economic interest is in production and the costs associated with manufacturing goods. The Wages of Labor Adam Smith ([1776] 2012: 69) advances his basic thesis regarding the value of work in the chapter entitled “Of the Wages of Labour” in his classical treatise An Inquiry into the Nature and Causes of the Wealth of Nations. It reads: “The produce of labour constitutes the natural recompence or Wages of labour.” In other terms, the Wages or the price of labor is determined by the price received for the product produced by the laborer. A “natural” remuneration for work presupposes a society and, thus, an economic life that is still in something close to a state of nature. The only factor of production that counts in such a society is labor. The price of a commodity, therefore, must be exchanged in proportion to the cost of labor (Smith, [1776] 2012: book one, Chapter 6)

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  London Essays in Economics: In Honour of Edwin Cannan

  • Hugh Dalton, T. E. Gregory(Authors)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  PRODUCTIVITY AND THE THEORY OF Wages BY

  EVELINE M. BURNS, PH .D. (LONDON ),

  LECTURER IN ECONOMICS AT THE LONDON SCHOOL OF ECONOMICS

  The theory of Wages, like all other economic theories, is only a means to an end. The economist desires to understand the forces influencing the quantity of goods and services enjoyed by individuals, but so complicated are the economic relationships of the world that he is forced to make broad classifications, and at most he can hope correctly to interpret those phenomena which at any given time are of particular significance to his problem. One of the most obvious facts of the world of to-day is that individuals obtain incomes, i.e., the right to goods and services, in return for participation in the productive process. Production is carried on by means of a large number of factors, land, labour, material and non-material equipment, etc., nearly all of which are capable of becoming objects of property. Most Western countries recognize the institutions of private property and free labour, and have evolved a system of inducements to persuade owners of labour or property to co-operate in production, People thus get incomes because they work or lend property, and since the majority of those who receive relatively small incomes roughly coincide with the classes who perform labour, it is clear that a theory which explains the Wages people receive will go a long way towards answering the major question regarding the distribution of wealth among individuals.

  At first sight the answer of the economists, at least in England and America, seems unanimous. Since the publication of Walker’s two books in the eighties of last century, almost all theories have laid great emphasis on the importance of productivity as a determining factor in Wages. But a clearer examination of the different theories reveals great differences both in the interpretation placed on the word productivity, and in the degree of importance assigned to it. Broadly speaking, there are two main groups of productivity theorists: those who, in effect, and often unconsciously, identify productivity with value, and those who argue that income is distributed on a value basis but that values in themselves are merely relative and have little meaning unless we know something about the physical productivity of industry.

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  Labour Economics

  • Stephen W. Smith(Author)
  • 2003(Publication Date)
  • Routledge

    (Publisher)

  3 Wage determination and inequality INTRODUCTION

  Bringing together the insights of the previous two chapters we are now in a position to understand how the labour market forces of supply and demand determine the price of labour, the wage. We will also examine the process of labour market adjustment to changes in supply and demand. We will explain what compensating wage differentials are. We will also examine the phenomenon of wage inequality, how it has developed over time and how the situation in the UK compares to other countries. Finally we will assess the significance of minimum wage legislation on the labour market.

  THE SIMPLE LABOUR MARKET

  By now the neoclassical economists view of the labour market should be clear. The demand for labour is roughly equivalent to its marginal productivity. With labour demand responding to changes in Wages and to shifts in demand for firms’ products tempered by the existence of non-trivial adjustment costs, supply is determined by the disutility of work relative to the utility of the Wages offered. Labour demand is a function of pre-tax real Wages whereas labour supply responds to post-income tax real Wages. Between them these forces of supply and demand, illustrated in Figure 3.1 , establish the market-clearing wage W*. In such an equilibrium there is no involuntary unemployment because everyone who wants a job at W* has one.

  From this equilibrium position changes can be incorporated to demonstrate the smooth functioning of the labour market. Consider the example contained in Figure 3.2 , where improved labour productivity or an increase in demand for goods would increase the demand for labour from D to D1 in Figure 3.2 (a). Wages would rise to W1 . Workers would increase the hours they were prepared to supply or economically inactive persons would enter the labour market to expand labour supply until employment reached L1

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  The Value of Work since the 18th Century

  Custom, Conflict, Measurement and Theory

  • Massimo Asta, Pedro Ramos Pinto, Massimo Asta, Pedro Ramos Pinto(Authors)
  • 2023(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  Instead, it brings forward questions not often addressed by them in order to contribute to a renewal of interest in the study of Wages in their full economic, political, social, cultural and intellectual dimensions. Most macro quantitative works on the historical determinants of labour market in the long run could not avoid using the daily wage as unit of measure (which is in most cases a statistical artefact), or to adopt more or less simplified labour market models in order to make the data intelligible and comparable across place and time. The assumption is often that the forces of supply and demand regulate labour, essentially in the same way as they regulate the exchange of any other type of commodity, and all that remains is to find its information (i.e. prices) to empirically explain its historical dynamics. In this view nominal and real prices, of Wages and other types of earnings, would contain all the essential information required to understand the scarcity of labour per sector and as a whole, the working of human capital in setting the levels of Wages for different skills, labour productivity and so on. The point is not only that the fragmentary figures provided by the few accounting records that have come down to us are used for a heuristic task that is hard to achieve, but that often the mention of the labour market and the role of supply and demand works as shorthand for the assumption of an ahistorical neoclassical perfect competitive market model which is adopted even when knowledge about the substitution elasticities, i.e. the degree of competition in those markets, is quite vague. Different assumptions about what we interpret as constitutive factors of the determination of Wages or conversely residual and temporary imperfections have important methodological and interpretative consequences

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  Intermediate Microeconomics

  Neoclassical and Factually-oriented Models

  • Lester O. Bumas(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  CHAPTER THIRTEEN

  Employment, Unemployment, and the Real Wage

  Employment and the related wage payments give workers earnings which amount to about 70 percent of national income and, at the same time, 70 percent of the nation’s purchasing power. By this measure, the earnings of labor are the most important of factor payments and labor the most important of factors.

    The neoclassical paradigm treats all markets the same with supply and demand yielding a stable equilibrium, stable in the sense that the force of disequilibria causes equilibria to be regained. Were labor markets in accord with the theory, the smallest outbreak of unemployment or labor shortage would force the market toward equilibrium and eradication of the labor shortage or surplus. With its high stress on this theory, unemployment in the neoclassical paradigm, is of little, if any, concern. Some distinguished leaders of the school even deny the existence of involuntary unemployment contending that people normally categorized as unemployed have actually chosen leisure over work. This is congenial to the equilibrium thrust of the paradigm—but not to me and others. Unemployment and other labor market disequilibria receives due coverage here.

    The existence of unemployment has given rise to a substantial number of models explaining its existence. Old an new ones are examined. Almost all economists believe that were the real wage less sticky, unemployment would be attenuated. But an empirically based model is presented which indicates that decreases in the real wage would probably worsen unemployment due to the real earnings loss it would create. Disequilibrium in the labor market covers more than unemployment. There is disequilibrium, for example, when workers want to work more or fewer hours than they actually work. All disequilibria considered, about 40 percent of workers are in disequilibrium.

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  Employment, Wages and Income Distribution

  Critical essays in Economics

  • Kurt W Rothschild(Author)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  From this it follows that the theory of competitive prices, whose attraction lies in their capacity of fairly quick adjustments to equilibrium after demand or supply have changed, should not have been used as a model for the labour market or at least not without far-reaching modifications. It would then have been possible to elaborate more distinctly the comparatively narrow limits for wage changes, to point out the role of a ‘recurrent linkage’ in the wage setting process as Krelle has so aptly called it.

  The greater rigidity of specific Wages as compared with specific prices is fortified by still another factor when the income aspect is kept in mind. The income of all workers is the product of hourly wage rates times a fairly fixed multiplier (number of working hours). When the Wages of a certain group of workers are under pressure their aspirations are not only influenced by their own existing wage but also by the Wages paid to neighbouring occupational or regional groups. Every relative wage change automatically has repercussions on the relative economic and social status. Specific prices, on the other hand, have mainly their own past as the only standard of comparison; prices of other goods play a minor role. Even when entrepreneurs aspire to a ‘conventional’ income this will not be directly connected with the absolute or relative changes in the prices of specific goods.

  The differences between prices and Wages which have just been mentioned influence the adjustment process which takes place (under competition) when an ‘equilibrium’ has been upset. The wage level for a specific occupational group will not even approximately be the outcome of a flexible interaction between demand and supply forces but rather a hotly debated point within a range whose limits are determined by historical, sociological and political dimensions. Demand elements can then have an influence on the volume of employment in this occupation without necessarily ending up with a cleared market. Unemployment or labour sbortages may exist for a considerable period without eliciting any tendencies towards an ‘equilibrium wage’. Marginal productivity theory in its microeconomic setting therefore represents not a wage theory but rather an employment theory after the wage has been fixed. In the long run sectorial disequilibria have a better chance to be overcome through gradual changes in relative Wages or through the migration of workers.8

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