Write Down The Residual Claimant Theory.


1 Answers

Haider Imtiaz Profile
Haider Imtiaz answered
The residual claim and theory has been propounded by the American economist, Walker. According to him, "Wages are the residue left over, after the other factor of production has been paid". According to Jevon's words, "The wages of a working man are ultimately coincident with what he produces, after the deduction of rent, taxes and the interest on capital." Therefore, the remainder of the total output goes to the workers as wages after rent, interest and profit have been paid. The efficiency of laborers has important role to increase wages due to increase in production.

Criticism: This theory has been criticized on the following rounds:

1. Role of Trade Unions: This theory ignored the important role of trade unions in determining the wages.

2. Ignorance of Supply side: This theory is also ignored the influence of supply of labor on wages.

3. Remuneration of other Factors: The other factors are land, capital and entrepreneur. The same laws of demand and supply to explain the remuneration of the above other factors of production cannot be applied to wages as well.

4. Entrepreneur is the Residual claimant: The entrepreneur under takes to pay the other factors of production before he can expect to get anything.

Therefore, it is the entrepreneur who is the residual claimant but not the worker.

Answer Question