Describe And Criticize The Subsistence Theory Of Wages.

This theory originated with the Physiocratic school of the French economists and was developed by Adam Smith and the classical  school of thoughts. It is also known as the iron law of wages or brazen law of wages. Karl Marx made it the basis of this theory of exploitation.

According to the subsistence theory wages tend to settle at the level just sufficient to maintain the worker and his family at the minimum subsistence level. The workers are encouraged to marry and to have large families due to increase in wages above the subsistence level. In this way, the supply of labor increase and it will bring wages down to the subsistence level. The marriages and births are discouraged due to fall in wages below this level. It will also cause to increase the death rate. The supply of labor decreases and it will cause to rise in wages to the subsistence level.

Criticism:

1. Wages are not cause of increase in population: When the wage of a worker increases, his living standard also increases. The worker does not want to produce more children. In actual life, the birth rate is higher in poor countries.

2. Wage Differences: This theory does not explain the wage differences among the workers due to education, skills, training etc. this theory explains only the wage rates that tends to be equal to subsistence level of all the workers.

3. Trade union: The trade unions have there important role for determination of wages. This theory ignores the role of trade unions.

4. Practical value: This theory does not explain wage fluctuations from ear to ear. So it has little practical value.