The Subsistence Theory of Wages, also known as the "Iron Law of Wages," was an alleged law of economics that asserted that real wages in the long run would tend to the value needed to keep the workers' population constant. The alleged law was named and popularized by the German socialist Ferdinand Lassalle in the mid 1800s.
According to Lassalle, wages cannot fall below subsistence level because without subsistence, labourers will be unable to work for long. However, competition among labourers for employment will drive wages down to this minimal level. This followed from Malthus' demographic theory, according to which the growth rate of population was an increasing function of wages, reaching a zero for a unique positive value of the real wages rate, called the subsistence wage. Assuming the demand for labour to be a given monotonically decreasing function of the real wages rate, the theory then predicted that, in the long-run equilibrium of the system, labour supply (i.e. population) will be equated to the numbers demanded at the subsistence wage. The justification for this was that when wages are higher, the supply of labour will increase relative to demand, creating an excess supply and thus depressing market real wages; while when wages are lower, labour supply will fall, increasing market real wages. This would create a dynamic convergence towards a subsistence-wage equilibrium with constant population.
As David Ricardo first noticed, this prediction would not come true as long as a new investment or some other factor caused the demand for labour to increase at least as fast as population: in that case the equality between labour demanded and supplied could in fact be kept with real wages higher than the subsistence level, and hence an increasing population. In most of his analysis, however, Ricardo kept Malthus' theory as a simplifying assumption.
During the mid-1800s, when Lassalle articulated his theory, wages for both manufacturing labourers and agricultural workers were in large part quite close to subsistence level.
2007-10-10 06:58:55
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answer #2
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answered by sparks9653 6
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the commercial Revolution sparked the liberty of the markets you spot as we talk, yet throughout the time of that component there grow to be numerous classification differences, new child-hard paintings, environmental exploitation, etc.
2016-12-29 03:09:42
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answer #3
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answered by ? 3
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