UNIVERSITY OF LUCKNOW

Faculty of law

Session : 2022-2023

Assignment Topic : THEORIES AND CONCEPT OF

WAGES

Submitted by : Malharika Idiguha

Semester : 6
Section - A
Roll no. – 190013015077
Subject – Labour Law
Paper – IV
Submitted to – R. C. Singh sir
Faculty of law
Lucknow University
 ACKNOWLEDGEMENT

I am deeply indebted to my Professor and Mentor without whose constructive

Support and feedback this assignment would not have been a success.

The valuable advice and guidance for the correction , modification and

Improvement did enhance my perfection about the said topic.

Secondly , I would like to thanks my parents and friends who helped me a lot

in finalizing the assignment within the limited time frame.

- MALHARIKA IDIGUHA

190013015077
INTRODUCTION

The term ‘wage’ can be defined as the payment made to workers for placing their
skill and energy at the disposal of an employer, the method of use of that skill and
energy being at the employer’s discretion and the amount of payment being in
accordance with the terms stipulated in a contract of employment of service.

CONCEPT OF WAGES

The term ‘wage’ can be defined as the payment made to workers for placing their
skill and energy at the disposal of an employer, the method of use of that skill and
energy being at the employer’s discretion and the amount of payment being in
accordance with the terms stipulated in a contract of employment of service. Wage
forms the basis for the calculation of the compensation of an employee.

Wage means economic compensation paid by employers to employees for the

services rendered by the latter. The committee on Fair Wages (1948) and the 15 th
Session of Indian Labour conference (1957) propounded certain wage concepts
such as Minimum Wage, Fair Wage, Living Wage and Need-based Minimum
Wage.

Minimum Wage:

A minimum wage is a compensation to be paid by the employer to his employee

irrespective of his ability to pay. The minimum wage must provide not only for the
bare necessities of life but also for preservation of efficiency of the worker namely
education health, other requirements and amenities.

Living Wage:
A living wage is a compensation which enables the earner to provide himself and
his family with not only the barest necessities of life like food, shelter, and clothing
but also a measure of frugal comfort including education for children, protection
against ill health, demands of social needs, insurance against misfortunes and old
age needs. This wage ensures standard of living.

Fair Wage:

It represents the average of minimum wage and living wage. It is above the
minimum wage and below the living wage. The wage is linked with the capacity of
the industry to pay. It depends on factors like labour productivity, wage prevailing
in the same and neighbouring localities, the level of national income and its
distribution and the place of industry in the economy of the countrycountry.
The Concept of fair wages was to be dynamic. There is no reason to assume that
fair wages fixed years ago should continue to be fair wages for al time, and any
fixation of minimum wages, should be taken not as minimum wages but as fair
wages because it is above the fair wages once fixed.

Wages – Definitions and Meaning

Labour is one of the most important factors of production. Labour expects fair
wages for the services it renders to the process of production. The term wages refer
to payments for services, whether manual or mental, based on hours of work or
quantity of output. Normally, the term wages is used to refer to payment made for
services given by manual labour or non-supervisory and non- clerical staff. It refers
to the hourly or daily rate paid to production and maintenance employees, i.e., blue
collar employees.
According to Berham, “Wages mean the amount paid to the labour for his services
to the employer”.
According to P.M. Stohank, “Wages is the labour’s remuneration which creates
utility”.

The term salary is defined as the remuneration paid to clerical and managerial
personnel employed on a monthly or annual basis. Nowadays, all categories of
employees are treated as human resources and the terms wages/salary are used
interchangeably. Wages/salary is the direct remuneration paid to an employee
compensating his services to an organisation.

Section 2 (vi) of the Payment of Wages Act defines wages as all remuneration
capable of being expressed in terms of money which would, if the contract of
employment express or implied, were fulfilled, be payable whether conditionally
upon the regular attendance, good work or other behaviour of the person employed
or otherwise to a person employed in respect of his employment or of work done in
such employment and includes any bonus, or other additional remuneration of the
nature aforesaid, which would be so on termination of his employment, but does
not include-

a) Value of house accommodation, supply of light, water, medical attendance

or other amenity;
b) Any contribution to pension fund or provident fund;

c) Any travelling allowance or the value of any travelling concession;

d) Any sum paid to defray special expenses entailed on him by nature of

employment; and
e) Any gratuity payable on discharge.

The above definition can be split into three portions. Firstly, wage means all
remunerations, which would if the terms of the contract of employment express or
implied, were fulfilled, be payable to a person employed in respect of his
employment. Secondly, wage includes any bonus or other additional remuneration.
Thirdly, the term ‘wage’ includes any sum payable to a person by reason of
termination of his employment.

Definition of Wages as per Minimum Wages Act 1948:

The Section 2 of the Act defines the ‘wages’ as remuneration that is capable of
being represented in form of money. This may include the House Rent Allowance,
but would exclude the amount paid as the value of house accommodation, supply
of water, electricity and medical, travelling allowance, contribution to pension
fund, provident fund or insurance, gratuity, or any other special expenses paid by
the employer.

Constituents or Components of Minimum Wage

According to Section 4 of the said Act, (Minimum
Wages Act, 1948) consists of the following:

(1) Any minimum rate of wages fixed or revised by the appropriate

Government in respect of scheduled employments under section 3 may
consist of-
(i) a basic rate of wages and a special allowance at a rate to be adjusted, at
such intervals and in such manner as the appropriate Government may direct,
to accord as nearly as practicable with the variation in the cost of living index
number applicable to such workers (hereinafter referred to as the "cost of
living allowance"); or
(ii) a basic rate of wages with or without the cost of living allowance, and the
cash value of the concessions in respect of supplies of essential commodities
at concessional rates, where so authorized; or
(iii) an all-inclusive rate allowing for the basic rate, the cost of living
allowance and the cash value of the concessions, if any.
(2) The cost of living allowance and the cash value of the concessions in
respect of supplies of essential commodities at concessional rates shall be
computed by the competent authority at such intervals and in accordance
with such directions as may be specified or given by the appropriate
Government.

THEORIES OF WAGES
THERE ARE 7 THEORY OF WAGES

 Wages Fund theory

 Subsistence theory
 The surplus value theory of wages
 Residual claimant theory
 Marginal productivity theory
 The bargaining theory of wages
 Behavioral theory of wages

1. Wages Fund Theory:

This theory was developed by Adam Smith (1723-1790). His theory was based on
the basic assumption that workers are paid wages out of a pre-determined fund of
wealth. This fund, he called, wages fund created as a result of savings. According
to Adam Smith, the demand for labour and rate of wages depend on the size of the
wages fund. Accordingly, if the wages fund is large, wages would be high and vice
versa.

2. Subsistence Theory:

This theory was propounded by David Recardo (1772-1823). According to this

theory, “The labourers are paid to enable them to subsist and perpetuate the race
without increase or diminution”. This payment is also called as ‘subsistence
wages’. The basic assumption of this theory is that if workers are paid wages more
than subsistence level, workers’ number will increase and, as a result wages will
come down to the subsistence level.

On the contrary, if workers are paid less than subsistence wages, the number of
workers will decrease as a result of starvation death; malnutrition, disease etc. and
many would not marry. Then, wage rates would again go up to subsistence level.
Since wage rate tends to be at, subsistence level at all cases, that is why this theory
is also known as ‘Iron Law of Wages’. The subsistence wages refers to minimum
wages.

3. The Surplus Value Theory of Wages:

This theory was developed by Karl Marx (1849-1883). This theory is based on the
basic assumption that like other article, labour is also an article which could be
purchased on payment of its price I e wages. This payment, according to Karl
Marx, is at subsistence level which is less than in proportion to time labour takes to
produce items. The surplus, according to him, goes to the owner. Karl Marx is well
known for his advocation in the favour of labour.

4. Residual Claimant Theory:

This theory owes its development to Francis A. Walker (1840-1897). According to
Walker, there are four factors of production or business activity, viz., land, labour,
capital, and entrepreneurship. He views that once all other three factors are
rewarded what remains left is paid as wages to workers. Thus, according to this
theory, worker is the residual claimant.

5. Marginal Productivity Theory:

This theory was propounded by Phillips Henry Wick-steed (England) and John
Bates Clark of U.S.A. According to this theory, wages is determined based on the
production contributed by the last worker, i.e. marginal worker. His/her production
is called ‘marginal production’.

6. The Bargaining Theory of Wages:

John Davidson was the propounder of this theory. According to this theory, the
fixation of wages depends on the bargaining power of workers/trade unions and of
employers. If workers are stronger in bargaining process, then wages tends to be
high. In case, employer plays a stronger role, then wages tends to be low.

7. Behavioural Theories of Wages:

Based on research studies and action programmes conducted, some behavioural

scientists have also developed theories of wages. Their theories are based on
elements like employee’s acceptance to a wage level, the prevalent internal wage
structure, employee’s consideration on money or’ wages and salaries as
motivators.

Conclusion
There are other different theories as well which provide for various analyses and
structure of wages. The Marginal productivity theory has been the closest to a
satisfactory theory of wages. It has its own criticism but the feature that it directly
relates to the productivity of the worker makes it stand out. The industries have
been working quite in the same mechanism in many places, however, it is difficult
to achieve the objective due to the challenges mentioned above. But still, in a
market, this theory is simpler and provides a better mechanism than the others.
There are other theories such as supply and demand theory as well which is purely
based on the supply and demand in the market and the employment and wages of
the workers according to it.
The concept of wages includes economic, Sociological, psychological and

Organizational elements. In an industrial Society , wages determine the worker’s

Way of life, including his social Position. A number of theories have been
Advanced attempting to explain the Different dimensions of wages and their
Evolution. Experience has shown that while the various Theories and policies have
some validity in certain defined conditions and serve to explain many aspects of
the wage situation, none is adequate to apply to all circumstances.