wages-fund theory

The wage-fund theory is an economic concept stating that there is a fixed amount of capital available for paying wages at any given time. According to this theory, any increase in wages for one group of workers would only redistribute the existing wage fund, rather than increasing the total amount of wages paid. This implies that legislation aimed at raising wages would be ineffective because the total fund available for wages is considered fixed at any moment.12

This theory suggests that wages can only increase if the available capital fund grows or if the number of workers decreases. The wage-fund theory was influential for a period but was later discredited by economists who argued that labor demand is not determined by a fixed fund but by consumer demand for products and the bargaining power of laborers.23