Residual Claimant Theeory

The theory has been criticised on the following grounds:

(1) One Sided Theory:
The theory takes into consideration the demand for labour while the supply of labour has
been ignored. Wage can be determined by demand and for supply of labour as is the case of
commodity pricing.

(2) Residual Claimant is Entrepreneur:

The theory explains that the residual claimant of total production is labour but in actual
practice we see that the entrepreneur is the last factor of production who gets the share out
of the total production in the form of profit or loss. Hence, the residual claimant is
entrepreneur and not labours.

(3) No Need of Separate Theory of Wages:

When rent, interest and profit are determined by the marginal productivity theory then the
wages can also be determined by the same theory and there is no need of separate theory of
wage determination.

(4) Role of Trade Unions Ignored:

The theory has also ignored the role of trade unions in the determination of wages. In
practice trade unions play an important role in wage determination in different industries.

Subsistence theory

The theory has been criticised on the following grounds:

(1) The theory is one sided. It emphasises on the supply of labour but does not
explain the demand for labour.
(2) (2) The theory does not take into consideration the productivity of labour while
determining the wages rate. Higher the productivity of labour higher will be the
wage rate and lower the productivity lower will be the wage rate.
(3) (3) Subsistence level cannot be easily measured because it depends upon the
number of members of the family, nature and wants of the labour.
(4) (4) The theory has explained that there is a direct relationship between wage rate
and population growth. But we know with the increase in wage rate the standard
 of living of workers will improve and they will believe in “small family is the
happiest family”.
(5) (5) The theory emphasizes on the exploitation of workers. The wage rate should
not be more than that subsistence level workers. But in actual practice we see that
the wage rate should be based on the productivity of labour.

Thus, the theory is outdated theory of wages. It has historical importance only.

Wage fund theory

Criticisms:
The wage fund theory has been criticised as given below:
(1) Wage Fund is an Imaginary Concept:
The theory assumes that there is a fixed wage fund created by an entrepreneur. But in actual
practice such fund is not realistic and it is an imaginary concept.

(2) Efficiency of Workers Ignored:

The theory assumes that the wage fund is fixed and wage rate can be increased only by
reducing the number of workers. But in actual practice we see that by increasing the
efficiency of workers we can raise their wages. The differential wage rate is an example of
this factor which has not been taken into consideration by the theory.

(3) The Demand for Labour is a Derived Demand:

The theory assumes that the demand for labour depends upon the wage fund. But in actual
practice we see that the demand for labour depends upon the demand for various goods and
services which are produced by the labour.

(4) Increase in Wages do not Affect the Profit:

The theory explains that with the increase in wages the profit will decrease. But when
productivity and production increase wages and profit will also increase. Hence, increase in
wages will not affect profit of the capitalists.

(5) Wage Differentials are not Explained:

The wage fund theory does not explain the causes of wage differentials in different parts of
the country and different industries.
(6) Trade Unions Ignored:
The theory has not taken into consideration the pulls and pressures of trade unions in
influencing and determining the wage rates. Trade unions play an important role in wage
determination.