Idea of the Subsistence Theory of Wage basically comes down to one thing: workers get paid just enough to survive. Nothing extra. No frills. Just enough to keep going.
The term “subsistence” literally means the bare minimum you need to stay alive—food, shelter, basic needs. That’s it.
This theory isn’t new. It actually started way back with the Physiocrats, and later classical economists kind of picked it up too. According to them, in the long run, wages would settle at this subsistence level—like a neutral point. And unless something really big changed, workers would just keep earning that basic amount.
They also pointed out that if workers could organize themselves—like through trade unions—they might be able to push wages a bit higher. But otherwise, the idea was: wages won’t go far beyond survival.
How It Supposedly Works
Okay, here’s how the theory breaks it down:
- If wages drop below the subsistence level → people can’t survive → they stop working or die → labor supply falls → wages go up again.
- If people earn more than the subsistence level → they’re doing okay → they have more kids → labor supply increases → wages fall back down.
This back-and-forth is why Lassalle called it the Iron Law of Wages. Basically saying: no matter what, wages always crawl back to that “just enough to live” point.
A Couple of Big Assumptions Here
This whole thing rests on two ideas:
- Food production can’t expand forever – eventually, the land and resources max out (thanks to the law of diminishing returns).
- Population grows fast – especially when people earn more, they tend to have more children, which increases the labor pool.
The Graph (If You Imagine It)
There’s usually a graph attached to this in textbooks. Imagine a chart where:
- The X-axis is labor supply and demand
- The Y-axis is the wage rate
- And OW is that fixed subsistence level
Now even if businesses are like “hey, we need more workers!” and demand goes up... the wage doesn’t move. It stays stuck at that survival point. Because apparently there’s always someone ready to work for the bare minimum.
Honestly? Kind of depressing.
But Yeah, This Theory Got a Lot of Criticism (For Good Reason)
1. It Only Looks at Labor Supply
Like okay, sure, more people = more workers. But it ignores demand. What if more jobs are created too? Wouldn’t that change things? This theory doesn’t talk about that.
2. No Real Link Between Wages and Population
They said higher wages = more kids. But if you look at developed countries today, that’s not true at all. Wages have gone up, but birth rates are dropping. People are focused on education, careers, and family planning. So that part doesn’t really add up anymore.
3. Totally Ignores Unions
Like, trade unions are literally a thing. People don’t just sit back and accept whatever wage they get. Workers organize. They protest. They negotiate. But this theory kind of acts like none of that happens. No mention of strikes, bargaining, or collective action.
4. Not All Jobs (or Places) Are the Same
This theory makes it sound like everyone, in every job, earns the exact same survival-level wage. But obviously, that’s not real life. A delivery guy in a small town won’t make the same as a tech worker in Bangalore. Even two people doing the same job might earn differently depending on the company or location. Wages are not uniform, and this theory just oversimplifies it.
5. Honestly, It Sounds Kind of Exploitative
Let’s not sugarcoat it. This whole theory is basically saying: “Pay people just enough so they don’t starve.” That’s it. No mention of comfort, or quality of life, or the idea that people deserve better wages as productivity or cost of living goes up. It’s kind of cold, honestly.
Final Thoughts
Honestly, the Subsistence Theory of Wage might’ve made sense way back when economies were simpler, but it doesn’t hold up now. Wages are influenced by a ton of stuff—like skills, education, job market demand, and policies.
Still, it’s useful to know this theory just to see how economic thinking has changed over time. We’ve come a long way—from “bare minimum” wages to now talking about living wages, worker rights, and fair pay.
Take a look at the detailed post on the topic -
