Nominal Real wages money wages W WMP X

üNominal üReal wages / money wages

� W= WM/P X 100 � W= Real wages. � WM= money wages. � P= Price index

1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) Money wages Price level Supplementary income Nature of employment Hours of work Working conditions Trade expenses Period and cost of training Employment of dependents Prospect of future promotion Social status

� Subsistence theory of wages � Standard of living theory of wages � The wages fund theory � The residual claimant theory of wages � the discounted marginal productivity theory of wages � Modern theory of wages

Marginal productivity of labour refers to change in total revenue by putting one more labourer, keeping all the other factors costant.

1. All labourers are homogeneous 2. Full employment 3. Perfectly mobile. 4. Perfect competition. 5. Law of diminishing returns operates(I. e. increase in supply of variable FOP increases TP at diminishing rate. 6. Applies in the long run 1.

Two approaches to analyse marginal productivity theory of wages : Ø Analysis from the point of view of an industry Ø Analysis from the point of view of a firm

• OX= labour • OY= wages/MRP • MW=AW • DD= • SS= MARGINAL PRODUCTIVITY CURVE supply of labour • OS= fixed • E= equilibrium wages • OW=ES=MRP

� Short period � Long period

Ø Ø Ø ARP>AW ARP=AW ARP<AW

LONG PERIOD

• Unrealistic • One assumption of perfect competition. side • Theoretical concept • Difficulty in measuring marginal productivity • Impractical • Less employment more wages • It ignores the influence of other factors on productivity • Static condition

v DEMAND OF LADOUR Demand of commodities • Price of other factors of production • v SUPPLY OF LABOUR Substitution effect • Income effect •

� Short � period long period