DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : G. M. Lakshmi
Designation : Lecturer
Institution : GPW Suryapet
Branch : DCCP
Year/Semester : VI th semester
Subject : Business Economics II
Subject Code : CCP-602
Main topic : Theories of wages
Sub-topic : Wage Fund theory-Criticism
Duration : 50 minutes
Teaching Aids : PPT, Animation
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Objectives

On the Completion of this period , you would

be able to :
 List the criticism on Wage Fund Theory

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Recap
In the previous class we have learnt Wage Fund
Theory
 Wage Fund is that part of capital set aside for
payment of wages
Wages = Wage Fund
No. of Labourers

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Criticism of Wage Fund Theory

This theory has been criticized severely by

Economists Like:
 Longe, Jevons and Others

The Important criticism Include:

 Mill says that wages are paid out of fixed fund but
also out of a flow of goods and services

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He is not Clear about:

1.The source of wages, Mill argued that wages are to

be paid out of a fixed proportion of capital
 But it is not true
 The wage fund changes according to the profits
level
 Thus wages are a flow and not a fund

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2. No producer will keep Wage fund
 In Actual practice, Wages are to be paid from the
national dividend
 National dividend is a flow but not a fund

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3. This theory wrongly assumes that the total
demand for labour is constant
 The demand for labour is dependent on the
productivity of labour
 This theory gives unnecessary important to the
supply side of labour

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4.This theory does not tell about
 The sources of raising such wage fund
 It does not tell the correct method for its
estimation

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6. According to this theory :
 Wages can increase only at the expense of
profits but in the times of prosperity both wages
and profits can go-up

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7. Newly developed areas pay better wages when
compared to old areas
 But this theory shows a different actual
experience

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8.This theory ignores:
 Principle of economy of wages
 A rise in wages would improve labour efficiency
and increase the demand for labour
 So to satisfy labourers, employers set aside
larger funds
 That is why economists regard capital as a flow
but not as a fund

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9.This theory fails to explain the wage inequalities

 It studies the problem of wages from the

quantitative aspect only

 The qualitative aspect of labour is totally forgotten

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 This theory also failed to explain why wages
fluctuate
 As the competition among employers increases,
wages tend to raise
 This theory ignores the power of trade unions in the
determination of wages

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Summary:
 This theory tried to explain movement of wages
in a changing world
 But this theory does not stands for truth
 J. S. Mill himself rejected his theory in his second
edition of
“Principles of Political Economy”
 Hence this theory is incomplete and inadequate in
the determination of wages

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Quiz

1. Wage fund theory was advocated by:

A). Robbinson
B). Carey
C). Jevon
D). J. S. Mill

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2. According to this theory rate of wage is
determined by:
A) Wage Fund
Population
B) Wage Fund
No. of workers
C) Both of the above

D) None of the above

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3. Can trade unions increase wages?

A) Yes
B) No
C) Don’t know
D) None of the Above

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4. According to this theory wages are to be paid from:

A) a fixed proportion of capital(Wage Fund)

B) National Dividend
C) Profits
D) None of the above.

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Frequently asked Questions :-
2. What is a Wage
3. What is meant by Wage Fund
4. Explain the Criticism against Wage Fund
Theory

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Thank you

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