Modern theory of wages

According to modern economists like shepherded, Stigler, pareto etc are of the view that just as the price of any commodity is determined by the forces of demand and supply in the same manners, wage rate is also determined by the forces of demand and supply of workers.

1.     Demand for labour:

Demand for labour is derived demand .it depends upon on a number of factors, such as the producing of labour, elasticity of the demand for the goods they produces, labour cost to total cost etc.

2.     Supply of labour:

Supply of workers, mean the number of hours of work, which the labour force offers in the factors market. Supply of labour is also affected by a number of factors such as wage rate, size of population age composition etc.   

The determination of wage rate is explained by the following schedule and diagram schedule.

                                                            Schedule

   

Demand for labour	Supply of labour	Wage
200 workers	90 workers	100 RS
175 workers	120 workers	150 RS
150 workers	150 workers	200 RS
110 workers	180 workers	250 RS
80 workers	210 workers	300 RS

                       
`Rate the demand for and supply of workers are equal.

In the above diagram, the demand and supply are equal at point “E”. At point E the demand and supply of workers are equal and so the wage rate determined as 200.