Introduction:

The subsistence theory of wages originated by the French economist in the 18th century and was developed by Adam Smith. It received the support of British classical economics like Ricardo and Malthus. The German economist Lassalle called it the Iron law of wages, the brazen law of wages. Karl marks made it the basis of his theory of value and exploitation. The theory explains like this.

Theory:

The Subsistence Theory of Wages is an economic theory that was developed primarily by the German economist Ferdinand Lassalle and is rooted in the ideas of earlier classical economists like David Ricardo and Thomas Malthus. This theory points that the wages of workers tend towards a level that is just enough to cover the basic subsistence needs of the worker and their family.

 According to this theory wages tends to settle at the level just sufficient to maintain the worker and his family at the minimum subsistence level that is the minimum recovery of existence. market wages must approximate to this level if at any time the wages are more than the subsistence level, the supply of labour tends to increase leading to a fall in the wage rate in the long run ,whereas if the market wages are less than subsistence level, It leads to starvation and disease, resulting in shortage of supply of labour consequently increasing the wage rates

 There is some element of truth in this theory, it applies to backward and underdeveloped countries to same extent, generally in this countries the wage paid to the workers in un organized industries tend to be equal to the subsistence level. However this theory has defect also.

1. Criticism:
   • Static View: The theory assumes a static economic environment, where productivity, technology, and other factors do not change, which is not applicable in real economies.
   • Human Capital: It does not account for the role of education, skills, and training (human capital) in influencing wage levels.
   • Empirical Evidence: The theory has been criticized for not aligning with real-world observations, especially in economies where wages have risen significantly above the subsistence level due to various factors like labor unions, minimum wage laws, and economic growth.

Conclusion:

The Subsistence Theory of Wages played an important role in the development of early economic thought, particularly in discussions about labor markets and wages during the industrial revolution. However, it has largely been superseded by more modern theories that take into account a broader range of factors influencing wages.

also read: explain the theories of profit.