Last Updated 28 Jan 2021

Modern Wage Determination Approach

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Wage is the compensation provided to a worker for his or her work by the employer. What should be the wage of a worker? It is he question always debated in economist circles from the time immemorial. The intensity in the debate can be seen from the industrial revolution. It is the topic on which all the giants of economics have contributed, either it be the Adam Smith, Karl Marx, of classical age or the contemporaries like John Dunlop and Michael Piore. Modern approach in Wage Determination:

The modern concept of wages is a departure from the traditional methods of wage determination, in which fixed wages or certain incentive base wages were preferred by the executives. In modern theory of demand and supply, labour is a commodity available in the market on competitive rates. Its treatment shall be the same as any other commodity available in the market. Suppose a market is labour intensive and abundance of labour is available in the market, as in case of Asian markets, especially China where the population of over a billion presents a comprehensive labour market.

In such a case labour is available on the cheap rates. Availability of too much labour increases the competition among them and excessive supply reduces the price of the commodity. Similarly, there are certain markets where only a skilled labour is required and non-availability of the required work force creates a short fall, hence an increased demand in the market. This shortfall results in the high wages on part of the labour force. This very case is evident in software technology where the wages are extremely high. Here another point needs attention that wages vary from market to market.

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In case of software industry, America and European markets are too costly because of the workers demand for compensation of their time as compared to their counterparts in the Asian countries. This is why, in recent years, a visible shift of high tech work has been seen towards India and it promoted her Silicon Valley. In a market, the wages goes on increasing or decreasing depending upon the demand in the market. As mentioned earlier, if the demand for some specific type of worker increases, the wage rates in demand and supply curve tends to move to the right side.

As in the case of construction activity in an economy, the wages for the masons tends to increase. But the case would be reverse if there is no obvious activity of construction. (The demand and supply curve indicating change in curve with change in demand and resulting equilibrium. Retrieved from Wikipedia ) In the whole scenario, there a visible relationship can be derived of this modern theory of wages and work presented by Aldrich and Cherry. Both these writers forwarded their view on compatibility of wages with the work.

On the same time they were on the task of minimum higher wages below to which no producer is allowed to pay. This very approach is crucial for the well being of the poorer class of the society, depending on their livelihood from the wages of their work. Governments have to define a lower ceiling in this case. (David M. Levy, 2001) Adam Smith and Wages: Same approach is evident in the work of Adam Smith who was a proponent of free world with minimum government intervention. He believed that let the market decide its equilibrium.

Market functions, according to him, are efficient enough to manage its needs and requirements as to demand and supply. In wage market, too, the market will decide the wages to prevail in market. However, he surprisingly, is in the favour of minimum wages to be decided by the functionaries. At least, this minimum wage shall be equal to minimum living needed for a small family reasonably. On his account, Adam provided a number of illustrations and examples to explain his point. (Brock Haussamen, 2007). John Dunlop and his work on Wages: John Dunlop on the other side also promoted the very basic idea of the minimum wages.

He described three ear in wage determination. The first one was started with the industrial revolution and ended with great depression. This period was marked by the wage fund symbolized wage thinking. The second phase is called modern era and lasted till late 20th century. The basic theme of this era is the marginal productivity of labour. All the laborers are required to be paied in term of their marginal productivity and efficiency. However, what is compulsory is the minimum wages defined on the basis of minimum living standards and announced by the competent authorities.

(Deborah M. Figart, Ellen Mutari, and Marilyn Power, 2002) Present era of the wage determination is called contemporary and characterized by the changing nature of labour and its complex interaction with the producers. Conclusion: In last, it can be safely deduced that modern theory is a remnant of Aldrich and Cherry. Similarly, the basic concepts of minimum wages and new theory of demand and supply is supported in all the eras of economic development and by all the theorists whether classical or modern.

Furthermore it is quite obvious that minimum wages is the function of minimum life support for the laborer and it is the function of state to ensure the same.

Work cited

Brock Haussamen, 2007, Adam Smith on the Minimum Wage? Retrieved on May 2009, from http://www. raiseminwage. org/id40. html Deborah M. Figart, Ellen Mutari, and Marilyn Power, 2002, , Living Wages, Equal Wages, Gender and labor policies in United States, Routledge, 2002 David M. Levy, 2001 ,Journal of the History of Economic Thought , vol. 23 Routledge, London

Modern Wage Determination Approach essay

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