by This theory was propounded by Walker. According to this theory, rent and interest are contractual payments. After deducting rent and interest from total product, the employer will deduct his profits. What remains after deducting rent, interest and profits is wages. It is possible to increase wages by increasing the total product by improving the efficiency of the workers.
This theory has several defects:
- This theory assumes that the share of landlords, capitalists and entrepreneurs are fixed and it is absolutely wrong.
- It is not the worker who is the residual claimant but the entrepreneur.
- It does not explain the influence of trade union in wage determination.
- The supply side of labour has been totally ignored by the theory.
