Modern Institutional School Wage Theory

Modern Wage Theory

Modern wage theory attempts to explain how wages are determined and what causes changes in wages. It is a branch of microeconomic theory that studies the determination of money wages and compensation of employees, and the effects of different forms of wage and compensation plans on other economic variables such as labor supply and labor demand, prices, output and economic welfare.

The classical view of wage determination focused on the wages that could be expected in different markets and investigated the causes of changes in wages. This approach emphasized the supply and demand of labor and the assumption that the labor market is competitive. This classical theory was replaced in the late 19th century and early 20th century with the emergence of modern wage theories.

Modern wage theory focused on the idea that wages are shaped by employer-employee relations and the bargaining power of workers and employers. In the modern wage theory conflict between employers and employees is seen as a driving force in wage determination. This theory was most famously expounded by economist John Maynard Keynes. He stated that the wage is determined by the bargaining between employers and employees. Keynes suggested that wages are likely to change if the economic power of workers and employers is not equal.

The modern wage theory has also developed theories in which wages and salaries are seen as a form of social insurance or benefits, and are potentially determined by moral considerations. This type of modern wage theory also takes into account the power dynamics of employers and employees, and suggests that wages should reflect a sense of fairness.

Other modern theories of wage determination are based around the human capital approach, which looks at the economic value of skills and experience of workers and the extent to which they help to produce returns for those who hire them. This approach emphasizes the value added of labor and rewards workers whose qualities help to increase the productivity of firms.

In addition to these theories, modern wage theories also accounts for taxation, benefits and minimum wage laws, which are all factors that affect the wages of workers. These government-led initiatives have become an important factor that shape wage determination.

Overall, modern wage theories are attempts to explain wage determination and the effects on outcomes in labor markets. These theories provide an insight into the power dynamics between employers and employees and draw attention to the factors influencing the wage determination process.

Modern wage theory refers to the wage theory proposed by the modern wage academic faction. Through theoretical analysis, wage academic faction combines the traditional wage theory proposed by Adam Smith and other idealist classical economists with Marxist wage theory, and sets up wage theories with modernity, practicality, universality and scientificity.

The wage school believes that the cause of wage determination is the unified and balanced effect of labor supply and demand. Labor supply is the total amount of labor market entrants’ willingness to work and their ability to work, while labor demand is the total amount of labor required by the labor market. In modern labor markets, the demand for and supply of labor largely determine the basic wage level. However, there are other factors that affect wages and certain parts of the wage level. According to the modern wage school, in addition to the basic wage level determined by the balance of labor supply and demand, the specific wage level of a certain occupation is determined by the characteristics of this occupation. These characteristics include the difficulty and complexity of the work, the degree of responsibility, the degree of job speciality, the social recognition of the job, and the demand for personnel in this occupation.

The modern wage theory believes that wages should reflect the qualitative and quantitative composition of different positions. Different kinds of jobs have different levels of difficulty and different levels of responsibility for each job, so the wages of different positions should be different. It also requires employers to pay attention to the physical and mental health of employees, as well as to improve the working environment and strive to create a conducive atmosphere for improving labor productivity. In addition, the theory also requires employers to give equal pay for equal work, that is, different genders in the same occupation should receive equal pay.