POPULATION, LABOUR AND WAGES:

The term population refers to the total number of people living in a

particular area in a given period of time both permanently and
temporarily.
POPULATION CENSUS:
This refers to the general enumeration (counting) of people in a given
country at a particular period of time. Population census is done in
many countries in order to:
1. Know the size of population in a country so as to plan for it.
2. Determine the birth rate, death rate and hence population growth
rate.
3. Know the population distribution
4. Know the rate of immigration and emigration
5. Determine the population structure i.e. sex, age etc
6. Solicit/mobilize foreign resources especially from population
agencies
7. Determine the quality of population i.e. level of education
8. Know the number of people employed and unemployed
9. Establish the marriage, separation and divorce rates
10. Establish the degree of income inequality
11. Know the size of labour force
12. Know the number of dependants. Dependency ratio is the
ratio of dependants to the total working population.
DEPENDENCY RATIO= NUMBER OF DEPENDANTS X 100
TOTAL POPULATION
Given that the working population in a country is 12,000,000, the young
population is 14,000,000 and the elderly population is 4,000,000,
(i) Calculate the country’s dependency ratio.
 (ii)Give any two effects of such a population structure.

POPULATION GROWTH:
This refers to the rate at which population grows per annum as
measured by the increase or decrease in population. The population of
a country grows in two major ways:
a) Artificial population growth rate, this is the growth in population
considering the difference between immigration and emigration.
Immigration is the act of people entering into a country in a given
time period.
Emigration is where people leave a country to go to other
countries in a given period of time.
b) Natural population growth rate, this is the growth in population
considering the difference between birth rate and death rate per
1000 people of the total population.
Birth rate is the number of children born alive per 1000 people
per year
Birth rate= Number of birth x 100
1000
Death rate is the number of people dying per 1000 people per
year.
Death rate = Number of death x 100
1000
Infant mortality rate is the number of infants under one year of
age who die per 1000 of the total population.
Fertility rate is the number of children a woman can bear in her
child bearing productive years.
 Population explosion is the abrupt/sudden increase in population
size above what the resources can sustain.

FACTORS INFLUENCING POPULATION GROWTH RATE:

1. The age of marriage, where the age of marriage is low e.g. below
18 years, birth rate and population growth rate is high. However
where the age of marriage high, the birth rate and population
growth rate is low.
2. Level of education, where the population is highly educated
especially women; it implies a low fertility rate since the marriage
age is delayed hence low birth rate and population growth and
where the population is knowledgeable about birth control
measures, the birth rate and population growth rate is low.
However low level of education implies a high fertility rate hence
high birth rate and population growth. Low level of education
also implies high level of ignorance as regards population control
measures.
3. Traditional and cultural values, strong cultural values and where
children are regarded as a source of wealth and prestige, the
birth rate and population growth rates are high. However, where
cultural values connected to children are relaxed, the birth rate is
low.
4. The proportion of women to men, where a country has more
women and they get married, the birth rate and population
growth rate is high since fertility rate is also high. However,
where men are more than women, the birth rate tends to be low
due to low fertility rate.
5. The status of women in society i.e. how active women are in
economic and social activities. Where women are actively
involved in such activities, it implies a low fertility rate hence low
birth rate and population growth and where the status of women
is low, birth rate is always high due to a high fertility rate.
6. Levels of urbanization, expansion of urban areas reduce the birth
rate because urbanization increases the cost of living and
maintaining a big family is expensive. However rural areas
encourage high birth rate since the cost of living is low and
maintaining a big family is cheaper in rural areas.
7. The fertility of women, where women are more fertile especially
in developing countries, the birth rate and population growth
rate is high, low fertility rate reduces the population growth rate.
8. Health care facilities, improvement in basic health care e.g.
immunization considerably reduces the death rate hence
increasing population growth. Poor medical facilities increase the
death rate hence lowering the population growth rate.
9. Religious factors, some religious sects discourage polygamy and
this implies low population growth rate, also some religions
discourage the use of birth control methods such as use of
condoms and this increases the birth rate.
10. Family planning education, access to family planning
measures reduces the population growth since people are aware
of dangers of large families, however limited access to family
planning measures increases the birth rate and population
growth rate.
11. Diseases and epidemics, the presence of diseases especially
sexually transmitted diseases reduce polygamy due to fear of
 death and this reduces the birth rate. Diseases also increase the
death rate hence reducing the population growth rate. On the
other hand, absence of diseases increases the population growth
since it encourages polygamy.
12. Level of income, poor people tend to produce more than the
rich since they look at children especially girls as a source of
wealth. Rich people on the other hand desire small families since
they look at the quality of children.
13. Level of immigration and emigration, where there is a high
rate of immigrants, then population growth rate is high due to
increased influx of people and where the emigration rate is low,
the population growth rate is low in the donor country.

QUESTION:
Account for the rapid population growth rate in your country
a) Improved medical care and immunization programmes
b) High fertility rate among women
c) High rate of immigrants e.g. from Rwanda, Sudan etc.
d) Low status of women in society
e) Low levels of education
f) Early marriages
g) High infant mortality rate which encourages people to produce
more as security
h) Low sensitization on dangers of high population
i) Improved economic conditions e.g. better nutrition which
reduces infant mortality rate
j) Low level of urbanization
k) Rigid cultural beliefs e.g. polygamy
 l) Limited access to family planning services
m)Religious influence and beliefs

FACTORS DETERMINING DEATH RATE:

a) Level of development of health facilities/medical care
b) Political climate in the country
c) Natural hazards
d) Degree of accidents
e) Occurance of epidemics in the country
f) Levels of income/poverty
g) Level of nutrition

POPULATION THEORIES:
There are basically three theories of population which include:
A. Over, under, and optimum population
B. The demographic population theory
C. The Malthusian population theory
OVER, UNDER AND OPTIMUM POPULATION:
This theory was advanced to explain population in relation to the
resources available in the country.
Over population (2011-p.1) is a situation where the population exceeds
the available resources resulting into a fall in average product. There is
excess population relative to other factors of production.
Under population (2010-p.2) is a population size that supplies
insufficient labourforce relative to the existing co-operant factors
leading to low average output/income per capita.
Optimum population is a population size that supplies sufficient
labourforce relative to the existing co-operant factors leading to high
average output/income per capita
Diagram showing over, under and optimum population:

MERITS OF UNDER POPULATION (Declining population)

1. It reduces pressure on land hence limiting land fragmentation and
increasing agricultural productivity
2. It reduces government expenditure on the provision of social
services
3. It reduces the rate of unemployment since job seekers are few.
4. It reduces the dependency burden thus increasing savings and
investment.
5. Reduces the balance of payment problem in the country due to
reduced expenditure abroad.
6. There is likely to be a fair distribution of income among the
population due to low rate of unemployment

DEMERITS OF UNDER POPULATION (2010-P.2)

1. Limited/small market size
2. Limited labour supply
3. Low output hence low economic growth
4. Leads to low tax revenue
5. Low level of innovations and inventions due to limited
competition
6. Under utilization of natural resources
7. Leads to high average cost of providing social infrastructure
8. Leads to low levels of investment/discourages investment.
MERITS OF OVER POPULATION (High Population Growth)
1. It increases labour supply leading to increased output
2. It increases the size of domestic market especially where the
additional population has ample purchasing power.
3. Increases government revenue through taxation especially where
the population has a high taxable capacity.
4. It initiates effort to work harder to sustain the dependant
population
5. It is an incentive/potential for massive future investment
especially among the young population.
6. The government is awakened to its responsibility of providing
necessary infrastructure hence development
7. It reduces the per capita social over head costs since the total cost
is spread over many people
8. There is high potential for increased resource utilization due to
the need to produce more goods to the increasing population.
9. It leads to high labour mobility in search of better paying ventures
10. There is improved security since it increases the size of the
army.
11. Where the majority are young, they are usually innovative.

DEMERITS OF HIGH POPULATION GROWTH (OVER POPULATION)

1. It leads to unemployment due to the inability to match the high
population growth with job creation
2. It increases pressure on social and economic infrastructure due to
high demand for social services e.g. schools, roads
3. Balance of payment problem arises due to a fall in exportable
surplus and increased demand for imports
4. It increases the dependency burden due to a high number of
dependants that have to be supported by the working population.
5. Leads to population pressure resulting into over exploitation of
some resources
6. Increased government expenditure as regards the provision of
social services; however this leads to persistent budgetary
deficits.
7. Promotes rural urban migration in search of jobs in towns.
However this leads to associated negative effects.
8. It causes income inequality especially between the few employed
people and the majority who are unemployed.
9. Results into brain drain due to high level of unemployment
10. It becomes difficult to effectively plan for the population due
to increased demand for public services. This affects service
delivery.
11. Increases land shortages and conflicts due to the need to
acquire land for settlement, agriculture and other economic
activities
12. Reduces government revenue especially where the biggest
proportion of the population is composed of the young who are
mainly dependants and unproductive.
13. It increases external resource dependence e.g. on foreign
manpower due to a high level of illiteracy.
14. It limits capital accumulation in the country due to low
savings and investment since funds which would have been saved
and invested are diverted towards maintaining dependants.
15. It leads to high crime rate as people struggle to survive
through crimes.
AGEING POPULATION:
This is where the biggest proportion of the population is above 65 years
of age. Such a population leads to:
a) Small size of labourforce
b) High dependency burden
c) High government expenditure e.g. paying pension
d) Limited demand for some goods
e) Low levels of innovations and inventions
f) Labour immobility
g) High level of conservatism
h) Weak defence force
N.B: Hidden momentum of population growth is where the greatest
proportion of the population is composed of a child bearing age group
implying high population growth rate in the future.

DEMOGRAPHIC TRANSITION THEORY:

This is a theory that explains growth of population from stagnant
growth stage through the rapid growth stage to the stage of low
population growth. These are summarized as follows:
a) Stagnant population growth i.e. high birth rate and high death
rate
b) High population growth i.e. high birth rate and low death rate
c) Low population growth i.e. declining birth rate and low death rate

STAGE ONE:
This stage is characterized by:
a) Polygamous families which accounts for high birth rates
b) Low education therefore birth rate remains high
 c) Poor technology is used
d) Poor medical facilities
e) Rigid cultural beliefs
Therefore, this is a stage of constant population growth due to high
birth rate and high death rate as a result of low living standards
STAGE TWO:
This stage is characterized by:
a) Improved standard of living
b) Improved medical care
c) Expansion and improvement in education
d) Improved child care
e) Polygamous marriages
Therefore, this is a stage of increasing population due to high birth
rate and falling death rate as a result of improved standard of living.
STAGE THREE:
This stage is characterized by:
a) Improved technology in all areas
b) Advancement in education
c) Women emancipation
d) The economy experiences harsh economic policies which raise the
cost of living
e) Family planning measures are used
f) Improvement in medical facilities
Therefore, this is a stage of low death rate and falling birth rate as a
result of improved standards of living.

MALTHUSIAN POPULATION THEORY:

Explain the Malthusian population theory (2012-p.1)
Explain five ways in which the theory is relevant to LDCs (2012-p.1)
Explain six limitations of the Malthusian population theory (2012-p.1)

Malthusian population theory states that whereas population grows at

a geometric rate, food production tended to grow at an arithmetic rate.
Malthus said that due to the above trend, population growth after a
time would outstrip food production (population trap) and after such a
time, there was need to control population growth through
preventive/negative checks like moral restraint, celibacy etc otherwise
positive checks like wars, diseases etc would serve to reduce the
population.
This situation is illustrated below:

N.B: Population trap is a point where population growth stops due to a

fall in food growth to sustain it.
ASSUMPTIONS OF THE THEORY:
A. Assumed a closed economy
B. Assumed constant technology
C. Assumes land is fixed in supply and subject to the law of
diminishing returns
D. Assumes a highly subsistence economy
E. Assumes population growth depends on food supply
The Malthusian population theory is to a lesser extent applicable in
developing countries in that:
1) Land supply being fixed and subject to the law of diminishing
returns is what is being experienced and he observed this
situation
 2) Natural family planning methods/control measures like celibacy
are being used
3) The positive checks on population exist in LDCs today e.g. wars,
epidemics
4) Land problems/disputes are common issues in LDCs
5) Some areas in LDCs face food shortages (famine)
6) Existence of a subsistence sector which is still large in LDCs

To a greater extent, the theory is not applicable to LDCs in that:

1) It assumes constant technology which is unrealistic since
technological progress occurs
2) It assumes a closed economy yet economies of most LDCs are
open economies/it ignores international trade.
3) Agricultural modernization is not foreseen by the theory yet this is
taking place in most LDCs
4) The theory ignores labour mobility that eases population pressure
on land
5) Population growth does not depend on food alone but it also
depends on other factors such as level of education, cultural
factors etc.
6) The theory is based on a subsistence economy yet economies of
developing countries are not predominantly subsistence any
longer.
7) It ignores the possibility of emigration that eases population
pressure on land.
8) The theory did not foresee the possibility of getting foreign aid
and resources from other countries.
 9) There is no mathematical relation as regards growth in food and
population.
10) The theory did not foresee great improvement in transport
that enables movement of food from areas of plenty to areas of
shortage.
11) The theory ignores the deliberate and scientific methods of
birth control/modern family planning methods e.g. use of pills
12) The theory did not realize that rising living standards can
cause a fall in birth rate and population
13) Malthus did not specify the time period at which population
growth would outstrip food production otherwise government of
LDCs would have planned adequately.
14) Malthus was influenced by the law of diminishing returns
which is not always true since increasing returns can also occur.

THE STRUCTURE OF POPULATION IN UGANDA:

1. Uganda has a population of about 34 million people with a high
population growth rate of about 3.2%
2. There is a high proportion of women to men in the total
population
3. Uganda has a high population below 15 years of age and a small
population above 65 years of age
4. Many people are poor and live below the international poverty
line
5. There is uneven population distribution. Some areas are densely
populated e.g. Kampala, Kabale while others are sparsely
populated e.g. Karamoja region
 6. A greater proportion of the population live in rural areas- about
80% are rural dwellers
7. The quality of labourforce is mainly unskilled and
semi-skilled/there is a high level of illiteracy
8. Most of the population is engaged in primary production
(agriculture) and a small number is employed in the industrial
sector
9. There is a high fertility rate among women-about 7 children per
woman
10. The life expectancy is still low although it has improved
tremendously.
IMPLICATIONS OF THE STRUCTURE OF UGANDA’S POPULATION:
Consider the positive and negative effects of a high population growth
rate.
WAYS OF CONTROLLING RAPID POPULATION GROWTH RATE:
1. Sensitizing the population on the dangers of big families through
education campaigns
2. Encouraging the use of family planning methods such as using
contraceptives in order to reduce the birth rate
3. Maintaining a high marriage at least above 18 years in order to
reduce the fertility rate and birth rate
4. Encouraging education of especially the girl child hence delaying
marriage age thus reducing the fertility rate
5. Encouraging women involvement in political and economic
activities and therefore gainful employment with less time for
many children
6. Improving basic health care facilities by especially encouraging
immunization in order to reduce infant mortality rates
 7. Encouraging monetization of the economy which makes it
expensive to maintain large families
8. Using economic incentives to small families and economic
disincentives to big families e.g. heavy taxation
9. Fostering urbanization which weakens the traditional customs and
beliefs found in villages which are responsible for high population.
10. Encouraging religious and cultural reforms in order to
reduce the high birth rates e.g. polygamy among the Muslim
community.
11. Encouraging migration of people from highly populated
areas in the country to ease population pressure and at the same
time regulating immigrants.

WAGES:
A wage is a monetary reward to labour for its contribution towards the
production process.
Nominal wage is a reward to labour expressed in monetary terms.
Real wage is the purchasing power of nominal wage or it is the amount
of goods and services purchased by nominal wage.
DETERMINANTS OF REAL WAGE:
1) The price levels/rate of inflation
2) The size of nominal wage
3) Level of taxation
4) The amount of money supply
5) The quantity of goods and services

A living wage (2005-p.1) is payment to a worker sufficient to provide his

basic needs.
HOW WAGES ARE DETERMINED IN UGANDA:
1. Through collective bargaining, this is a peaceful round table
negotiation between employers representatives and trade union
representatives regarding terms and conditions of work e.g.
wages
2. Through piece rate method, it is where workers are paid
according to the amount of work done.
3. Through time rate method, it is where workers are paid according
to time taken/spent at work e.g. per hour, day, week, month etc.
4. Through forces of demand and supply of labour, where the
demand for labour exceeds the supply, the wage level is high but
where supply of labour exceeds the demand, the wage level is
low.
5. By individual bargaining, a high bargaining power of individual
workers for high wages implies an increase in wages and a low
bargaining power for high wages implies low wages.
6. Through government determining wages, this is especially so for
civil servants
7. Through employers determining wages, this is where wages are
predetermined basing on the institutional wage structure and set
up.

FACTORS THAT DETERMINE THE LEVEL OF WAGES (2010-P.1)

1. The market forces of demand and supply of labour, where the
demand for labour exceeds the supply, the wage level is high due
to shortage of labour and where the supply of labour exceeds the
demand, the wage level is low because of many people looking for
jobs.
2. Nature of jobs, risky jobs mostly command high wages since many
people fear to take up such jobs, however less risky jobs
command low wages since they are preferred by many people.
3. The level of education and training/skills, workers who have a
high level of education and skills are more productive and
therefore they command high wages compared to those who are
less skilled and productive.
4. The bargaining strength of individual workers, workers who have
a greater ability to negotiate for high wages are in position to get
such high wages and those with a low bargaining power for high
wages receive low wages.
5. The government policy on wages, where the government sets a
minimum wage, workers are not so much exploited and therefore
the wage rate is high but where government is reluctant to set
wages, employees are exploited inform of being paid low wages.
6. The cost of living/price levels, a high cost of living necessitates
workers to demand for an increase in wages in order to maintain
a favourable standard of living, however where the cost of living is
low, the wage level is also low.
7. Employers ability and willingness to pay, where the employer has
the will and ability to pay, the wage level is high and where the
employer has limited ability and will to pay the wage level is low.
8. The time worked i.e. time rate system, the more the time that a
worker takes to do work, the higher the wage rate and where
workers spend less time at work, the wage rate is low.
9. The level of talents/natural abilities, workers who are gifted and
talented in specific fields command high wages while those who
are less talented receive low wages
 10. Level of experience, expertise and responsibility, workers
who are more experienced are more productive and responsible.
Therefore such workers earn high wages compared to those who
are less experienced.
11. Ability of workers to do work-piece rate, individuals who
accomplish bigger tasks through hard work earn more than those
who are lazy and accomplish smaller tasks.
12. The strength of workers trade unions, workers who belong
to strong trade unions that are in position to bargain for high
wages are able to earn higher wages, however, workers who
belong to weak trade unions have a low bargaining power and
therefore such workers get low wages.
13. The level of discrimination in the labour market, some
workers are favoured at work places in terms of religion, tribe, sex
etc. Therefore those who are favoured earn high wages than
those who are not favoured at the work places.

CAUSES OF WAGE DIFFERENCES:

Account for wage differentials in your country
1) Differences in nature of jobs, individuals who take up risky jobs
are exposed to life threatening dangers; therefore such people
earn high wages compared to others who take up less risky jobs.
2) Variation in level of skills, education and training. Highly educated
people are in position to get better paying jobs and this means
that they earn high wages. However people who are less
educated have limited access to better paying jobs which implies
low wages.
3) Differences in bargaining strength of individual workers, workers
whose ability to negotiate for higher wages is high earn more than
those with limited ability to bargain for higher wages.
4) Differences in trade unions ability to bargain for higher wages,
individuals who belong to strong trade unions earn high wages
simply because such trade unions are in position to bargain for
higher wages while workers who belong to weak trade unions
earn low wages due to inability of such trade unions to negotiate
for higher wages.
5) Differences in people’s ability to do work-case with piece rate,
individuals who accomplish bigger tasks through hard work earn
higher wages compared to the lazy ones who accomplish smaller
tasks.
6) Differences in employers’ ability and or willingness to pay, where
the employer is able and willing to pay, high wages are earned but
where the employer has less ability and will to pay, wages are
low.
7) Differences in time worked-case with time rate, individuals who
take long time working earn higher wages. However those
individuals who take a shorter duration at work earn low wages.
8) Non-matching government policy on income and wages, such
government policy on wages therefore implies that some people
are paid higher wages than others.
9) Differences in experience, expertise or responsibility in that senior
workers who are more experienced are more productive and tend
to earn more than junior workers who are less productive and
experienced.
 10) Discrimination in the labour market on the basis of age, sex,
religion etc. Some individuals are discriminated at work places
while others are favoured. This implies that those who are
favoured earn higher wages than those who are discriminated
against.
11) Differences in elasticity of supply of labour, labour whose
supply is inelastic is highly trained and more productive.
Therefore such labour earns a high wage. However labour with
elastic supply is less trained and less productive and therefore
such labour earns a low wage.
12) Differences in the cost of living, individuals who stay in areas
with high cost of living are necessitated to demand for higher
wages in order to maintain a favourable standard of living.
However individuals who stay in areas with low cost of living earn
low wages.
13) Differences in talents and natural abilities, some people are
more gifted than others in certain fields. Therefore those
individuals who are more talented exploit their natural talents to
earn higher wages. Individuals who are less gifted earn low wages
due to limited exploitation of their natural talents.

THEORIES OF WAGES:
1. Subsistence wage theory (Iron law of wages), this theory states
that workers should be paid a bare minimum wage (subsistence
wage) so that they can work harder after experiencing hardships
like hunger and starvation. The theory emphasizes that the wage
level should correspond with the subsistence level of living at
which people could just maintain the existing families. Beyond
 this wage level, population increases and below it people may die
thus reducing the population and taking it back to the subsistence
level.
2. The wage fund theory, the theory emphasizes that the wage for
labour should be put in a fund from which labour is paid. Such a
fund has to grow as the profit and ability of the firm increases and
therefore, the bigger the fund, the higher the wages and the
smaller the fund, the lower the wages.
3. The bargaining theory of wages, this theory states that wages in
any particular sector depends on the strength of trade unions and
employers associations. Therefore variations in wages between
different occupations are due to differences in the strength of
trade unions and employers associations.
4. The residual claimant theory, according to this theory, wages are
residues after other factors of production have been paid, that is
to say- Wages= Total Revenue- Interest, Profits and Rent. The
bigger the residues, the higher the wage and the smaller the
residues, the lower the wage. This theory has been rejected on
the ground that it does not explain how trade unions raise wages
for their members.
5. Market theory of wages, according to this theory, wages are
determined by the forces of demand and supply of labour. The
theory assumes the following:
 Perfect mobility of labour
 Perfect knowledge in labour market
 No government interference in wage determination
 All units of labour are assumed to be homogeneous
  There is perfect competition among labour for jobs and among
employers for labour
However the theory has the following limitations
 Labour differs in skills and productivity/it is not homogeneous
 There is government intervention in wage determination
 Labour is not perfectly mobile
 There is imperfect knowledge in the labour market
6. The marginal productivity theory of wages/distribution (2008-
p.1),
The marginal productivity theory of wages states that labour/a
factor of production should be paid a wage/reward which is equal
to the value of its marginal product.
The wage should be below or equal to the marginal revenue
product and if the marginal productivity of labour reduces, the
wage should also reduce for the extra labourers’. The theory is
based on the law of variable proportions.
Diagram

According to the illustration, the supply of labour is perfectly

elastic because all units of labour are homogeneous.
The demand curve of labour is represented by DL; it is downward
sloping due to diminishing marginal product of labour. The
equilibrium wage and units of labour is obtained at a point where
DL is equal to SL. It is a point where the value of the marginal
product of labour is equal to the wage (VMPL=W).
At that point, the firm employs OLO units of labour and pays OWO
wage.
The marginal productivity theory of wages has the following
assumptions:
1. There is no government intervention in wage determination
2. There is perfect mobility of labour both occupationary and
geographically
3. It assumes free and complete competition among employers for
labour
4. The bargaining power of employers and workers is equal
5. It assumes labour is homogeneous i.e. same skills, ability and
efficiency
6. It assumes the law of diminishing returns
7. Labour knows its marginal product towards total output
8. Labour and capital are fully employed.
9. Employers are able to measure and predict the marginal
productivity of labour in advance
10. There is free and complete competition among workers for
jobs
11. Labour can wholly substituted
What are the limitations of the marginal productivity theory in wage
determination? (2010-p.1)
1. The theory ignores the role of trade unions in bargaining for high
wages
2. Government usually intervenes in fixing wages inform of
minimum wages
3. Labour is not homogeneous as the theory assumes since workers
productivity varies
4. Labour is not completely mobile as the theory assumes, there
exists labour immobility due to low wages in other areas.
 5. The law of diminishing returns may not always hold, there may be
increasing returns.
6. Employers at times use subsistence level as a measure of wages
which may be above or below the value of the marginal product.
7. It is difficult to measure the marginal product of labour in some
occupations/sectors e.g. the service sector
8. The theory does not consider the level of education and training
in determining wages and this may differ among individuals.
9. It ignores historical factors in determining wages e.g. inherited
salary structure
10. It does not consider the exploitation of workers by
capitalists
11. Labour and employers cannot determine the exact value of
the marginal product since output is produced by many factors.
12. It ignores the supply of labour in determining wages
13. There is no free competition of labour for jobs and
employers for employees because of tribalism, nepotism in the
labour market.
14. Labour cannot be wholly substituted as the theory assumes
since it works hand in hand with other factors of production.
RELEVANCE OF THE THEORY:
1. Some workers are rewarded depending on their marginal product
where it can be measured
2. In the private sector, there is limited influence of government in
wage determination.

METHODS OF WAGE PAYMENT:

1. GOVERNMENT WAGE LEGISLATION (MINIMUM WAGE):
Governments in developing countries have a big say in
determination and payment of wages because they are the
biggest employee sector.
MINIMUM WAGE (2005-P.1)
It is one set by the government above the equilibrium wage and it
is illegal to pay workers below.
Minimum wage legislation is government policy of setting a wage
above the equilibrium wage below which it is illegal to pay
workers.
Diagram
REASONS FOR MINIMUM WAGE LEGISLATION:
1. To protect workers from employers exploitation
2. To increase the purchasing power of workers
3. To stimulate labour productivity and efficiency
4. To control workers malpractices and disloyalty e.g.
occurance of strikes
5. To encourage savings and investment
6. To control income inequality among workers
7. To reduce rural urban migration especially where the
minimum wage is set in all areas
8. To reduce brain drain
9. To satisfy workers needs and improve their standard of
living.
MERITS OF HIGH MINIMUM WAGES (2008-P.1)
1. It increases efficiency of workers due to increased
motivation
2. It increases government revenue through taxation
 3. It increases the level of savings and investment due to an
increase in the income of workers
4. It increases demand for goods and services due to an
increase in incomes
5. It protects workers from exploitation by employers since it is
illegal to pay workers below the legislated minimum wage.
6. It minimizes labour unrest since workers are contented with
the wage being paid to them
7. It reduces cases of voluntary unemployment since workers
feel that the wage being given to them is high and
favourable
8. It fights malpractices such as corruption among workers
because the wage being given to them is high and this leads
to an increase in the income of workers.
9. It promotes equitable distribution of income especially
where the wage is rationally implemented in the different
sectors.
10. It promotes mobility of idle labour due to expectation
of getting a higher wage in alternative areas.
11. It reduces brain drain due to the increase in incomes of
workers
12. Government gains popularity since workers feel that
the government is much concerned towards their plight of
having higher wages.
DEMERITS OF HIGH MINIMUM WAGES:
1. It increases the cost of production due to high labour costs
2. There is excess supply of labour in relation to demand
because the wage is favourable to the employees.
 3. It causes technological unemployment due to increased
preference by employers to use machines instead of
expensive labour
4. It discourages investment due to increased cost of
production
5. Rural urban migration may result especially if the high wages
are urban based.
6. It causes inflationary tendencies due to increase in
aggregate demand for goods and services by workers.
7. It worsens income inequality especially where it is not
evenly implemented
8. It reduces the profit levels of entrepreneurs due to high
production costs. This discourages investment.
N.B: Wage freeze is the legally backed holding of wages at their
existing level for a specified period of time in order to control
inflation.
Wage restraint is the voluntary restriction of wage increases where
the government encourages trade unions to moderate their demand
for wage increases in order to control inflation
2. Time rate wage payment,
This is a method of wage payment where workers are paid
according to the time worked/time spent at work e.g. hourly,
weekly, monthly.
MERITS OF TIME RATE WAGE PAYMENT SYSTEM:
1. The worker is assured of regular income since the wage is
constant and periodical
2. It is easier to calculate the wages of workers since in most
cases it is fixed for a period of time.
 3. Professionals are better remunerated since it is hard to
quantify their services
4. It strengthens trade union solidarity due to having a
common objective
5. It improves quality of products since work is not done
hurriedly
6. Risks and accidents are reduced as workers proceed at their
own pace
7. Encourages hard work especially where overtime pay is
possible
8. The less efficient workers benefit because their contribution
is assessed after a period of time
9. Unlike piece rate method, workers may even be paid during
the time of sickness since the wage is not related to output.

DEMERITS OF TIME RATE WAGE PAYMENT SYSTEM:

1. It calls for a lot of supervision in order to promote efficiency
but this is costly
2. It encourages go slow tactics and laziness at work which
reduces output
3. It discourages hard working workers since they are treated
the same way lazy ones are treated.
4. It requires proper record keeping which is inadequate in
developing countries.
5. It may cause low output due to inefficiency.

3. Piece rate wage payment

This is a method of wage payment where workers are paid
according to the amount of work done.
MERITS OF PIECE RATE SYSTEM:
1. It reduces the cost of supervision since workers are self
driven and able to supervise themselves
2. The fast and hard working workers are paid fairly since the
wage is related to the output produced.
3. It is easy to calculate the wage since output is measurable
4. It stimulates the dull and lazy workers to be more active
since payment is according to output produced.
5. It limits conflicts over payment since wages depend on
output produced./work done.
6. It protects employers against falsified payment since wages
are directly related to output
7. It promotes team spirit among workers in order to increase
output
8. Tasks are completed faster in order to earn more/it saves
time.
9. Employers are able to identify suitable employees basing on
the output produced
10. It increases output as workers strive earn higher wages
by working hard.
11. It encourages innovativeness among workers due to
the desire to accomplish bigger tasks
12. Workers do work at their own pace since their
remuneration depends on the output produced.
DEMERITS OF PIECE RATE METHOD:
1. There is a fall in the quality of output due to hurried work.
 2. It increases wage differentials since individuals’ strength to
do work is not the same.
3. It results into accidents as workers over strain themselves to
earn more
4. The variations in piece rates from one locality to another
undermine trade union solidarity since there is no common
objective.
5. The work is not assured of regular income because output
produced is not constant at all times
6. There is over production due to the desire by workers to
increase output. However, this results into resource
wastage.
7. The careful, efficient but slow workers are not favoured
since those who are fast and hard working earn more.

4. Profit sharing system

It is a method of wage payment where workers are permitted to
hold shares in the business and are paid wages according to the
profits made by the firm and shares held. Profits may be
distributed according to the period of service or the shares held.

MERITS OF PROFIT SHARING SYSTEM

1. It creates a sense of belonging among workers because they
feel that they are part of the business
2. It creates a good relationship between the employer and the
employee
3. Firms are likely to realize higher profits because workers will
aim at maximizing profits so as to earn higher wages.
 DEMERITS OF PROFIT SHARING SYSTEM
1. The employers may exploit the employees especially where
they are ignorant about the total profits realized
2. The workers may not give due respect to the employer on
ground that they are partners in the business.
3. It is likely to create conflicts between employers and
employees over the amount of wages.

5. Cost of living method (SLIDING SCALE)

This is a system of wage payment where workers are paid
according to the changes in the cost of living. When the cost of
living decreases, wages are adjusted downwards and when the
cost of living increases, wages are adjusted upwards.
MERITS OF SLIDING SCALE METHOD:
1. It maintains a favourable standard of living because wages
increase with increase in the cost of living
2. Producers benefit indirectly because consumption is not
affected
3. It may increase the profit margins of the employer when the
cost of living reduces because he pays less inform of wages.
DEMERITS OF SLIDING SCALE:
1. It causes cost push and wage inflation
2. It causes conflicts between workers and employers
especially where there is a decline in cost of living and wages
have to be decreased
3. Planning on the part of workers is difficult since wages are
not constant
4. The cost of living index is expensive and difficult to calculate.
 6. BONUS SYSTEM
It is a method of wage payment where workers are paid more
than the wage rate agreed upon at the time of entering into a
contract. It is based on efficiency of the worker i.e. extra payment
for extra work done.
MERITS OF BONUS SYSTEM
1. It increases output
2. The workers become more efficient
DEMERITS OF BONUS SYSTEM
1. It may result into production of poor quality output
especially if it is paid as a result of hard work which may be
done hurriedly
2. It causes a decline in social welfare of workers as a result of
over working in order to get extra pay.

TRADE UNIONS (2011-P.2)

A trade union is an association/organization formed by workers with
the primary objective of advocating for increased wages and better
conditions of work of its members.
OBJECTIVES OF TRADE UNIONS:
1) To negotiate with employers for higher wages and better
conditions of work through collective bargaining
2) To protect workers against unfair treatment, dismissal from work
by employers
3) To organize seminars and workshops in order to improve the skills
of workers
4) To secure the natural rights of workers and provide effective
means of expression
 5) To improve the working conditions of the workers e.g. advocating
for better housing, medication etc.
6) To participate in economic development policies such as
advocating for a minimum wage
7) To advise government on manpower planning.

TYPES OF TRADE UNIONS:

1) OPEN SHOP TRADE UNIONS, this is a type of trade union where
all types of workers irrespective of their skills and occupation are
allowed to join
2) CLOSED SHOP TRADE UNIONS, this is a trade union which
restricts its membership to a certain category of people of the
same skill and occupation. It is aimed at maintaining standards of
their skills among its members and also restricts membership.
3) INDUSTRIAL UNIONS, these are trade unions which attempt to
organize all workers in a particular industry regardless of the type
of job done by the workers.
4) CRAFT UNIONS, these are trade unions formed to organize
workers according to their particular skill e.g. teachers, doctors. It
can include all workers of the same skill in the whole country.
5) WHITE COLLAR UNIONS, these are trade unions which organize
clerical and administrative staff and other non-manual workers.
They are mainly found in banking, teaching, local government etc.

TOOLS/METHODS USED BY TRADE UNIONS TO ACHIEVE THEIR

OBJECTIVES
QUESTIONS:
 A. Explain the methods used by trade unions to obtain wage
increases for their members in your country (2009-p.2)
B. Explain the factors that limit the ability of trade unions to raise
wages in your country (2009-p.2)
C. Explain the methods used by trade unions to settle disputes in
your country (2011-p.2)

Trade unions achieve their objectives through:

1. Collective bargaining/round table negotiation, this is a peaceful
round table negotiation between employer’s representatives and
trade union representatives regarding the terms and conditions of
work e.g. wages.
2. Go slow action; it is where workers reduce their pace of work
leading to reduced productivity thus low total output.
3. Sit down strike, this is where workers report for duty/work but
lay down their tools.
4. Violent strike/go on strike, this involves destroying the property
of the firm as a way of showing discontent by the workers e.g.
setting sugar cane plantations on fire.
5. Sabotage/boycott/media wars, this is where trade union
members decampaign the products of the firm or organize for
their boycott by the public.
6. Court action, this is where trade unions take their case to the
industrial court whose ruling is binding.
7. Industrial arbitration/mediation, it is where a neutral party
acceptable by both sides settles the matter.
8. Picketing, this is where workers demonstrate or protest outside
the premises of the firm and prevent those who want to work.
 9. Demonstration against the firm’s action by using banners and
placards to show their discontent.
10. Closed shop, it is where trade unions restrict the entry of
new members in order to reduce labour supply and increase
wages for their members.
11. Abduction of key members of management, this is where
workers lock up the administrative staff of the firm in their offices
as a way of showing their discontent.

MERITS OF TRADE UNIONS:

1. They encourage fair income distribution by advocating for
increased wages of workers
2. They increase the aggregate demand for goods and services
especially when they succeed in lobbying for higher wages for
their members
3. They motivate workers to work harder because of increased
wages they advocate for.
4. They encourage industrial peace by settling disputes through
collective bargaining.
5. They improve welfare of workers through advocating for
increased wages
6. They increase skills of workers through training and this is done by
organizing seminars.
7. They offer job security to their members by sensitizing them
about their rights and work ethics
8. They help the government in designing labour policies such as
manpower planning.
DEMERITS OF TRADE UNIONS:
1. They destabilize industrial peace through staging strikes
2. Their activities may cause unemployment as employers adopt
machines instead of expensive labour (technological
unemployment)
3. They discourage investment due to increased labour costs
4. Their activities may escalate cost push inflation since they lead to
an increase in the cost of production
5. They cause rural urban migration due to the concentration of
trade union activities mainly in urban areas.
6. They may cause chaos, instability and wars especially when their
demands are not met.
7. They cause income inequality since their strength and ability to
bargain for higher wages is not the same.

FACTORS THAT DETERMINE THE STRENGTH OF TRADE UNIONS:

1) The financial strength of trade unions/amount of strike fund,
trade unions with adequate strike fund are in strong position
since they are able to sustain their members during the strike
while those with limited funds are weak since they are not able to
sustain their members during the strike.
2) The size of membership, trade unions that consist of a large
membership are in a stronger position to achieve their objectives
since their strike action is usually felt. Where trade unions consist
of a small membership, their activities are not felt and therefore
such trade unions are in a weak position.
3) Level of employment/unemployment, wide spread
unemployment in an economy weakens trade unions since it is
 easy to replace labour incase of a strike while full employment in
an economy puts trade unions in a strong position since labour is
highly demanded.
4) Elasticity of supply of labour, where the supply of labour is
inelastic as the case with skilled labour, trade unions are in a
strong position because such labour is more productive and not
easily replaced and where elasticity of supply of labour is elastic,
trade unions are weak since such labour is less productive and
therefore easily replaced.
5) Elasticity of demand for the product produced, where the firm’s
products have inelastic demand e.g. essentials, trade unions are
strong since such commodities are needed and not easily
substituted. However, where the products have elastic demand,
trade unions are weak because such products are easily
substituted since they are not essential.
6) Level of productivity of members, trade unions whose members
are highly productive are in strong position to demand for
increased wages because of a high level of skills possessed by
their members but where trade unions have less productive
members, they are limited from demanding for increased wages
due to inadequate skills possessed by members.
7) Degree of government/political interference in trade union
activities, where there is a high degree of interference in trade
union activities by the government, trade unions are weak
because their position is compromised while limited government
interference in trade union activities increase their strength to
achieve their objectives since their position is not easily
compromised.
 8) Prevailing economic performance, trade unions are in a better
position to bargain for an increase in wages during a boom period
since there is increased profitability in most firms. However
during an economic recession, trade unions are limited from
demanding for increased wages due to low profitability of firms.
9) Degree of organization of trade unions, trade unions with skilled
professional members are better organized and usually achieve
their objectives as opposed to those with limited skilled members
who are less organized.
10) Composition of trade union members, trade unions with
large membership of migrant labour are in a weaker position
compared to those with permanent membership since migrant
labour is only concerned with short term benefits.
11) Proportion of wages to the total cost, where wages
constitute a small proportion to the total cost of production, trade
union activities easily succeed since profitability of the firm is not
highly affected but where wages constitute a big proportion to
the total cost of production, trade union actions do not easily
succeed since employers may even prefer to use machines to
substitute expensive labour.
12) Existing labour laws, favourable labour laws such as setting
of a minimum wage put trade unions in a better position to
bargain for increased wages because workers are not easily
exploited by employers but where labour laws are unfavourable,
labour is highly exploited and this makes trade unions weak.
Explain the factors that determine the strength of trade unions in
developing countries. (1999-p.2)
PROBLEMS FACING TRADE UNIONS IN UGANDA:
Examine the problems facing trade unions in your country (1998-p.2)
What factors limit the ability of trade unions to raise wages in your
country? (2009-p.2)
1) Small size of membership, this limits the success of the strike
action since they have limited effect on the economy.
2) Financial constraints which results into lack of adequate funds to
sustain members during the time of the strike action.
3) Poor and weak union leadership which is not able to successfully
articulate the workers cause of bargaining for increased wages.
4) Disunity of members along tribal, religious and political
differences. This compromises and weakens the trade union
activities.
5) Rampant unemployment, this scares trade unions from
demanding for increased wages as their members can easily be
replaced at short notice.
6) Government interference in trade union activities. This involves
government arresting and intimidating trade union leaders and
this eventually compromises their position which further weakens
them.
7) High proportion of migrant labour, such labour is always changing
jobs and place of work and may therefore not support trade union
actions as it is always uncooperative.
8) Corruption and embezzlement of union funds by trade union
officials. This increases the trade union financial difficulties.
9) Ignorance of workers about trade union activities. Many workers
do not know the objectives of trade unions and therefore find it
difficult to support trade union activities.
 10) Political insecurity in some parts of the country. This hinders
the mobilization of workers and activities of trade unions.
11) Trade union leaders use trade unions as platforms for
attaining personal gains or political office in government and are
therefore easily compromised by the government.
12) Most of the trade unions are open and therefore lack trade
union solidarity which weakens them.
What is meant by the term collective bargaining? (2003-p.1)
Give any three features of trade unions in developing countries.
(2003-p.1)
a) They lack permanent membership
b) They are financially weak
c) They are mainly urban based
d) They attract small membership
e) They tend to be politically motivated
f) They have weak leadership
g) They are commonly characterized by disunity along tribal,
religious and political differences.
To what extent have trade unions in your country achieved their
objectives? (2004-p.2)
To a smaller extent trade unions have achieved their objectives
reasons being:
a) They have improved wages of workers in some sectors.
b) Due to their actions, some employers have tried to improve the
working conditions.
c) They have tried to advise the government on the wage policy e.g.
advocating for a minimum wage.
d) They have improved the skills of members through training.
 e) They have tried to create unity among members.
f) They have tried to seek, promote and maintain human rights by
protecting workers against unfair treatment and dismissal.
To a greater extent, they have failed to achieve their objectives
reasons being:
a) They have failed to improve wages and fringe benefits to
desirable levels due to low bargaining power.
b) They have failed to improve the working conditions as evidenced
by many workers still exposed to poor working conditions.
c) They have failed to protect all members against unfair treatment
e.g. there is still unfair dismissal of workers in some sectors.
d) They have failed to improve skills of members through training
because of the high costs involved.
e) They have failed to forge unity among members as evidenced by
many trade unions being divided along tribal, political and
religious differences.
f) They have failed to maintain consistent membership due to poor
leadership of most trade unions.
g) They have consistently failed to advise government on the
development process as regards employment policy and
manpower planning.
CIRCUMSTANCES UNDER WHICH TRADE UNIONS ARE JUSTIFIED TO
DEMAND FOR WAGE INCREASE.
When are employees justified to demand for wage increase? (2007-
p.1)
Under what circumstances are trade unions justified to demand for
wage increases? (2002-p.1)
Under what circumstances may workers demand for higher wages?
(1998-p.2)
1) When there is an increase in the cost of living, workers demand
for wage increases in order to maintain a favourable standard of
living.
2) When there is an increase in the working hours without
corresponding increase in pay.
3) When the employer has failed to pay the earlier on agreed wage
and workers’ feel that they are being exploited.
4) When workers doing similar jobs have got a wage increase and
therefore there is comparison in wages.
5) When there has been an increase in the productivity of the
workers through advanced training which implies increased
efficiency in production.
6) When there has been an increase in the profits of the firm and
members contributed to such an increase in the profits, then they
are entitled to sharing some profits.
7) When there is an increase in the risks and occupational hazards at
the place of work and workers feel that they are exposed to poor
working conditions.
8) When the demand for the firm’s products is inelastic and workers
are aware that the employer is able to increase their wages
without affecting the profit level of the firm.
9) When the demand for their services exceeds their supply implying
that they are much needed.
10) When there is general prosperity in the economy and
workers know that most firms are realizing abnormal profits.
 11) When the wage being paid is below the government’s
legislated wage and workers feel that they are being exploited.
Under what conditions do trade union activities become undesirable?
1) When trade unions demand for increased wages than their
average output.
2) When their activities create wide income inequality especially
through excessive demand for wage increases.
3) When they lead to the use of capital intensive techniques of
production as many employers prefer to use machines hence
rendering many people unemployed.
4) When their activities are a threat to national security which may
lead to overthrow of the government.
5) When their activities promote disunity along tribal, religious and
political discrimination.