There are two key Wages Theories that explain why salaries are the way they are in a particular field. These two Wages Theories are:
1.Traditional Wages Theories of Wage Determination
In this theory, the law of supply and demand dictates salary. These days programmers are in short supply and are in great demand thus they will command a higher salary.
Likewise, doctors and lawyers whose specialised skills people need command a high wage. If you looked at the bill my electrician gave me you would know he is in demand!
2.Negotiated Wages Theories
Those employees who work in unions where the union negotiates salary on behalf of all workers fit into this theory. Since I am a teacher my salary is set by collective bargaining with my union. I may be the best teacher in the world sought after by many students and parents but it wouldn’t matter.
However, different methods of wage payment are prevalent in different industries and in various countries. There may be payment by time or payment by results, including payment at piece rates.
Wages are fixed mainly as a result of individual bargaining, collective bargaining or by public or State regulation. How wages are determined has been the subject of several theories of wages. The main elements of these theories may be summed up as follows:
Below is mentioned the theory of Wages:
(1) Subsistence theory
(2) Wages-fund theory
(3) The surplus value theory of wages
(4) Residual claimant theory
(5) Marginal productivity theory
(6) The bargaining theory of wages
(7) Behavioural theories