Wage Theory

Wage theory explores how wages (workers’ pay) are determined in the labor market. It considers factors like the supply and demand for labor, the productivity of workers, and the bargaining power of employees and employers. Essentially, wages adjust to balance how much labor employers need and how many workers are available, aiming to attract and retain employees while maintaining business competitiveness. Different theories, such as marginal productivity theory, suggest wages are linked to the additional value a worker provides, whereas others examine influences like skill levels, cost of living, and market conditions.