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What Is Modern Theory Of Wage?

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Modern theory of wage
Modern theory of wage is also known as modern theory of supply and demand.
Wages under perfect competition:
The rate of wages can be determined in the same way with the help of demand and supply analysis.

Demand for labor:
There are various factors which influence the demand for labor. Four main factors are as under:

Demand for labor is derived demand.
Elasticity of demand for product.
Proportion of labor cost to total cost.
Availability od substitution for labor.

Demand for labor is derived demand:
If the demand for a product is high in a market so the demand for labor producing for particular type of product will also be high. If the demand for a product is low in a market so the demand for labor producing for particular type of product will also be low.

Elasticity of demand for product:
If the demand for a particular product is inelastic so the demand for a particular labor will be inelastic. If the demand for a particular product is elastic so the demand for a particular labor will be elastic.

Proportion of labor cost to total cost:
If the wages of worker for only a small proposition to the total cost of product then the demand for labor will tend to be inelastic. So the rise in wages will not reduce the demand for labor.

Availability od substitution for labor:
If the substitution of labor producing is easily available in the market then the demand will be inelastic.

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