Essay about The Development of Wages

Essay about The Development of Wages

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One of the fundamental discussions in the realm of Economics since Adam Smith’s Wealth of Nations. Wealth of Nations, printed in 1776 was the first in depth look into the distribution of wealth and the development of wages .After the likes of Smith and other classical economists such as John Ricardo, Robert Malthus, and Karl Marx, neoclassical approaches to wage theory began to develop . In 1932 J.R. Hicks published The Theory of Wages, which introduced the idea that wages were controlled by supply and demand . While Hick’s theory has become the standard of economics, there have been other ideas that have expanded from the basic supply and demand idea. Two theories in particular to be examined are “Superstar” theory and the “Tournament” theory. Superstar theory is the idea that in certain professions the difference in skill level is far smaller than the difference in compensation for people in the field . Tournament theory suggests that setting certain fixed prizes for two executives to compete for will increase the effort level of the two and therefore increase production .The evolution of wealth distribution theories are deeply tied to the evolution of labor. As labor has become less homogenous theories of distribution have evolved accordingly.
For classical economist, the lowest wage that could achieve subsistence was considered the normal wage. This did not mean that certain aspects of supply and demand did not influence the real wage. Adam Smith went into detail about how a surplus of workers can drive real wages below the normal wages and vice versa . Economists such as Robert Malthus and James Mill preached that workers would be able to keep their wages high by limiting the supply of laborers through birth control and lat...


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...en a great boost since the 1800s and there was no reason for there to be an economic analysis of the income of celebrities. Factory workers would have no control of their supply so it would be impossible for the superstar theory applied to them. Today however, the superstar theory does apply to more than just athletes, movie stars, and musicians; top financial analysts and consultants are in command of their supply and could service many consumers if they’d want to, one reason why they are usually among the top earners. The tournament theory has developed more for the middle executive level positions in which the two individuals will most likely not know that they are competing with each other and probably won’t even know each other. By using “tournaments” firms encourage workers to work harder and therefore increase output; which helps decrease firm’s stagnation.

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