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A THEORETICAL STUDY ON THE RELATIONSHIP BETWEEN WAGES AND LABOR PRODUCTIVITY IN INDUSTRIES

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Author(s): Dr. Sudhakar Patra | Satya Ranjan Nayak

Journal: International Journal of Economics and Research
ISSN 2229-6158

Volume: 03;
Issue: 03;
Start page: 157;
Date: 2012;
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Keywords: Labour productivity | Marginal productivity of labour | wage-cut policy | Keynesian Economics.

ABSTRACT
In this paper, we examine the two way link between wages and labour productivity. In one way increase in productivity facilitates increase in wage, on the other way increase in wage induces increase in productivity. Wehave taken the help of ‘Theory of marginal productivity distribution’ to support the hypothesis i.e. productivity determines wages. Simultaneously, the classical view and Keynesian view indicate that wages determine productivity. Though the classical approach gives stress on wage cut policy to improve productivity but Keynesapproach is different and that gives emphasis on that there is an inverse relationship between money wages and real wages. When money wages are reduced real wages rise. This is because a fall in money wages will lead to a more than proportionate fall in prices. When prices fall, real wages rise because of increase in value of money. Besides the above factors, some other model which support wage-productivity relationship like The Solow Model, Fair Wages, Nutritional Efficiency, The Gift Exchange Model, The Adverse Selection Model, The Shirking Model are also discussed in this paper. Finally, this paper is only a theoretical review on the relationship between wages and Labor Productivity in Industries.
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