Residual Claimant Theory– Wage TheoriesCompensation Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Residual Claimant Theory

• It was Francis A. Walker who

propounded this theory.

According to him, there were

four factors of production,

viz., land, labour, capital and

entrepreneurship.

Residual Claimant Theory

• The residual-claimant theory

holds that, after all other

factors of production have

received compensation for

their contribution to the

process, the amount of

capital left over will go to the

remaining factor.

Residual Claimant Theory

• In 1875 Walker worked out a

residual theory of wages in which

the shares of the landlord, capital

owner, and entrepreneur were

determined independently and

subtracted, thus leaving the

remainder for labour in the form

of wages.

Residual Claimant Theory

• Wages represent the

amount of value created in

the production which

remains after payment has

been made for all these

factors of production.

Residual Claimant Theory

• In other words, labour is the

residual claimant. The wages

are equal to the whole

production minus rent,

interest, and profit.

Residual Claimant Theory

• It should be noted, however,

that any of the factors of

production may be selected

as the residual claimant—

assuming that independent

determinations may be

made for the shares of the

other factors.

Residual Claimant Theory

• It is doubtful, therefore,

that such a theory has

much value as an

explanation of wage

phenomena.