Subsistence Theory of Wages:

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.
According to this theory, wages are tend to maintain the evel just significant to maintain the
workers at the minimum subsistence. If the level of wages rise above the sussistence level. So
the supply of labor become high in mnumber or large. The supply of labor brings wages
downward to maintain the subsistence level. If the wages falls below the subsistence level,
the supply of labor decrease until wages rise to maintain the subsistence level. It is supposed
that the supply of labor is infinetly elastic.
Critisism:
Critisism on subsistence theory of wages are as under:
The subsistence level is uniform for all working labor with certain exceptions. The theory
thus does not explain differences of wages in different employments.
The fundamental weaknesses of subistence theory lies in its long term character. It contains
adjustment of wages over lifetime of a generation and does not explain wage influctuations
from year to year.
"The subsistence minimum" vary vague, thus it prefers to the minimum requirements of a
modern man or of a tribal savage? There is not rapidly fixed minimum and it is not
independent of the wages ruling over a period of time.
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.