THEORIES OF WAGES
Every "theory" deals with the more significant forces that "determine" some particular effect, and a wage theory attempts to explain a particular wage, wage change, or wage differential in terms of some other factor or factors. Like any theory, it must be a simplification of the actual relationships involved, or a generalization about them, since it deals only with those aspects that are regarded as essential. Furthermore, to be scientifically recognized, it must be consistent with theories of types of actions of a similar nature.
The average citizen--even one who sometimes protests that he is not interested in theories but is a practical man--usually acts on the basis of theories, although they may be contradictory, incomplete, and implicit. The worker's idea that if he works hard he will receive higher wages and promotions rests implicitly on the theory that wages are related directly to intensity and quality of effort; at the same time he may also believe that his friend is getting a higher wage because "he knows the right person," which rests on the "theory" of the relationship of wages to the practice of wage discrimination by the employer on a noneconomic basis. A businessman may simultaneously blame unions for high wages and argue that large capital investment in each worker is the cause of the high wage standards of the American worker; in this case he is accepting a version of both the bargaining and productivity wage theories.
We shall begin this chapter with a brief review of some of the wage