WAGE AND SALARY

income derived from human labour. Technically, all payments for the use of labour, mental or physical, are covered, but in ordinary usage the terms exclude income of the self-employed and are restricted to compensation of employees. Occasionally fringe benefits are included, but generally they are not. The terms are not fully synonymous with labour costs, which may include such items as cafeterias or meeting rooms maintained for the convenience of employees (such items are part of capital). Wages and salaries, in economic terms, however, do include remuneration in the form of extra benefits, such as paid vacations, holidays, and sick leave, as well as supplements in the form of pensions and health insurance paid for by the employer. A worker in covered industries also receives the protection of government-provided unemployment compensation, old-age pensions, and industrial accident compensation. Government services provided for workers are of even greater significance in European countries than in the United States and must be taken into account when comparisons of earnings are made. Additional reading Analyses of economic distribution appear in David Ricardo, Principles of Political Economy and Taxation (1817, reissued 1981), the classical subsistence theory of wages; Karl Marx, Capital, vol. 1 (1886; originally published in German, 1867), also available in many later editions, treating the process of distribution as pure conflict; John Bates Clark, Distribution of Wealth (1899, reissued 1965), the classic work on marginal productivity theory whereby distribution is viewed as a harmonious process in which the factors of production receive as income what they contribute to the product; Frank H. Knight, Risk, Uncertainty, and Profit (1921, reprinted 1985), an analysis of profits viewed as a result of imperfect foresight and as a remuneration for risk-bearing; Joseph Schumpeter, The Theory of Economic Development (1934, reprinted 1987; originally published in German, 1912), an analysis of economic development as a result of the innovations of entrepreneurs motivated by profit; Paul H. Douglas, The Theory of Wages (1934, reissued 1964), marginalist theory based on statistical research which sets forth the famous Cobb-Douglas function; K.J. Arrow et al., "Capital-Labor Substitution and Economic Efficiency," The Review of Economics and Statistics, 43:225-250 (1961), an econometric study explaining the falling share of capital in the national income by the elasticity of substitution; J.R. Hicks, The Theory of Wages, 2nd ed. (1963, reissued 1973), a sophisticated treatment of marginal productivity theory; and Nicholas Kaldor, "Alternative Theories of Distribution," in his Essays on Value and Distribution, 2nd ed. (1980), a discussion of various theories from Ricardo to Keynes. Dan Usher, The Economic Prerequisite to Democracy (1981), suggests that democracy requires broad agreement on how an economic system will distribute wealth. Other works in this area are Alan S. Blinder, Toward an Economic Theory of Income Distribution (1974); and Ronald G. Ehrenberg and Robert S. Smith, Modern Labor Economics: Theory and Public Policy, 5th ed. (1994). Kenneth E. Boulding Paul Lincoln Kleinsorge Hans Otto Schmitt Jan Pen The Editors of the Encyclopdia Britannica