Productivity and Wages: What Grows for Workers without Power and Institutions

Abstract

The neoclassical model of wages suggests that wages are set according to the marginal productivity of workers. The article consists of international comparisons and analysis of the Indian labour market based on a set of structural and political variables. In questioning the validity of the neoclassical model, it is argued that variables such as the strength of trade unions, the size of the informal sector and national rates of poverty are better explanations for wage levels. Therefore, to improve wages and conditions, workers and their representatives must address the structural and institutional factors which determine wages.