The following points highlight the three general level of wages. The levels are: 1. The Output Per Head 2. The Share of Labour in the National Income 3. The Terms of Trade.
Level # 1. The Output Per Head:
Workers cannot get more than what they produce. Therefore the wage level must be related to labour productivity According to many writers, the rate of wages so determined by the marginal productivity of labour. The total income of the workers as a whole is equal to that part of the aggregate output which is attribute to labour Hence the average wage is equal to such output divided by the number of workers i.e., the output per head.
It must be noted, however, that the workers of a country may get wages less than their average output, because of the superior bargaining power of the employers. There may also exist political and institutional factors favouring the exploitation of labour. During the early nineteenth century in Great Britain, the Government favoured the employers by following the policy of non- interference in economic matters (laissez faire). The wage rates were consequently low. Wage rates may also be low in a fascist dictatorship.
Level # 2. The Share of Labour in the National Income:
It is apparent that aggregate wages or the part of the national income which goes to labour is not determined solely by the productivity of labour. Labour’s share in the national income is considerably influenced by various political and institutional factors like, the system of property rights, methods of industrial organisation, existence and power of trade unions, control of the administrative machinery etc.
ADVERTISEMENTS:
During the middle ages, the greater part of the national income went to the landlords. During the early nineteenth century in Great Britain, the greater part of it went to the capitalists. In modern times, the development of trade unionism and collective bargaining has increased the share of labour.
Bowley’s Law:
Statistical investigations show that the proportion of wages and salaries to the total return to properties was more or less constant hi U.K. it was about 42%. In U.S.A. it was about 35%. The constant proportion has been called Bowley’s Law.
Certain theories have been advanced regarding the determination of labour’s share in the national income. Kalecki is of opinion that labour’s share depends upon the degree of monopoly power country. The greater the monopoly power possessed by the capitalists, the less is the share of labour.
ADVERTISEMENTS:
In all capitalistic societies, monopoly exists and therefore labourers are likely to get less than what they deserve. According to some neo-classical writers, the share of labour in the national income is determined by the elasticity of substitution between capital and labour. There are many other theories also.
Level # 3. The Terms of Trade:
According to some writers, the level of real wages in a country varies from time to time according to the terms of trade (i.e., the rate at which a country gets its imports in exchange of its exports). If the terms of trade are favourable, the country gets a higher real income from its international trade and hence labour incomes rise. In the converse case, the national income is less and labour income also becomes less.