Livelihood Logic:
Theory of Subsistence Wage
"A great emigration necessarily implies unhappiness of some kind or other in the country that is deserted."
- Thomas Malthus' population theory served as the foundation for the subsistence wage theory, which is developed by the economist, David Ricardo.
- According to Ricardo, this theory is based on two assumptions:
- Population increases at a faster rate
- Food production is subject to the law of diminishing returns
- As per the subsistence wage theory, the salaries of labourers are often set at the lowest amount required to fulfil the necessities, which is called the subsistence level.
- Ricardo developed this theory on the idea that the employers have the authority to decide the salaries of employees and will decide that to maximize their profits.
- It is assumed that the market price of labour would not differ from natural price for long time.
- If wages rise above the subsistence level, the workforce will eventually rise, causing to decrease the wage rate back.
- On the other hand, if wages are set below the subsistence level, workers will not be able to afford at least the necessities. Therefore, the workforce will eventually reduce and thereby push the wage rates up.
Criticisms on Subsistence Wage Theory
1.The theory oversimplified the complex factors influencing wage determination including, technological advancements and institutional factors.
2.Failing to take into consideration, the other elements that can affect pay levels like, productivity skills and market conditions.
Written By: W.A.I.Shavindi, W.R.Hansani, J. Rajapaksha
Reference:
Kumar, M. (2022, December 2). Top
3 Theories of Wages (With Diagram). Economics Discussion. https://www.economicsdiscussion.net/wages/top-3-theories-of-wages-with-diagram/7446
No comments:
Post a Comment