Using the theory of wage determination, Wages are determined by the value of workers to firms. In many developing countries, the level of capital is quite small, and so worker productivity is quite low.
Classical economists argue that wages (the price of labor) are determined (like all prices) by supply and demand. They call this the market theory of wage formation. When workers sell their labor power, the price they can charge is affected by some supply-side factors and some demand-side factors.
Modern wage theory sees wages as the price of labor and all other prices determined by the usual analysis of supply and demand. According to this approach, wages are determined by the interplay of market forces of supply and demand.
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