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Residual Claimant Theory

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Residual Claimant Theory Many theories of wages have been propagates as an explanation of the prevailing wage conditions of a country. The demand and supply theory, generally termed as the modern theory of wages is the most acceptable theory of them al

Residual Claimant Theory

Many theories of wages have been propagates as an explanation of the prevailing wage conditions of a country. The demand and supply theory, generally termed as the modern theory of wages is the most acceptable theory of them all. Out of the many theories propagated, Residual claimant theory is one such theory of wages which has been discussed in details below.

What is Residual Claimant Theory?

This theory was advanced by the American economist Walker. As per walker, wages are the remainder left in excess of after the other factors of creations have had been remunerated. The American economist Walker states that interest and rents are administrated by contracts, income are dogged by explicit ideology and that there are no comparable philosophy operating in regard to wages. Out of the total production, therefore, when real, interest and profits have been paid; the remainder goes to the human resources as wages.

As compared with the other theories, this theory is quite optimistic.

It holds out to the workers a likelihood of growing their wages and then bettering their lot if they worked hard. If by working more they produce more, then, according to this theory, the whole of the extra production will go to them.

The Residual Claimant Theory acknowledges the opportunity of boost in wages through superior competence of labor. In this logic, it is a positive theory, whereas the other two theories wages fund theory and the subsistence theory are negative.

Criticism of the Residual Claimant Theory

This theory, too, has been rejected by most economists. In the first place it does not explain how trade unions are able to raise wages.

Secondly, it ignores the influence of supply of labor on wages.

Thirdly, one fails to understand why the same laws of demand and supply, that explain the remuneration of other factors of production, should not be applied to wages as well.

Finally, the residual claimant is not the worker but the entrepreneur, who undertakes to pay other factors of production before he can expect to get anything.

Hence the Residual Claimant Theory also failed to put forward a substantial theory explaining the prevailing rates of wages in a country.

 

1 comment

s shankar
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Posted on Nov 6, 2012

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