Let’s be real—wages aren’t just numbers thrown at you at the end of the month. There's a lot of history and thinking behind why people get paid what they do. And yep, over time, economists came up with all sorts of theories to try and explain it. Some made sense back then, some don’t anymore, and some still kinda hold up.
Wages and productivity? Pretty much the building blocks of the whole economy. If they go wrong, everything else wobbles too. That’s why understanding the logic behind wage systems actually matters—even if it sounds boring at first.
What Even Is a Wage Theory?
Basically, it's economists trying to make sense of how labour gets priced. Think of it like them saying: “Hmm, how much should we pay people... and why?”
These theories have shifted over time because the world itself changed. Back in the day, you had feudal systems where people worked the land and wages weren’t really a “thing.” But once big companies, factories, and money markets came in—new ideas had to replace the old ones.
The Subsistence Theory – Just Enough to Survive
This one’s old. Like, really old. It was mostly pushed by folks like David Ricardo, and it's tied up with Malthus’ theory on population.
The deal was: People would only ever earn just enough to stay alive. Like, food-on-the-table kind of level. Why?
- If wages went up, more people had kids.
- More kids meant more workers later.
- More workers meant cheaper labour.
- And boom—wages drop again.
If wages dropped too low, people would struggle, fewer kids, labour supply shrinks… and wages rise back. It was this grim loop where workers could never really get ahead. Sounds rough, right? But that’s how they thought it worked.
Marginal Productivity Theory – You Get Paid What You Add
Fast forward to the late 1800s, things got a bit more “mathy.”
This theory’s vibe is basically: You get paid based on how much value you bring in. Like, if the last person a company hired adds $100 worth of stuff a day, they get paid around that. If hiring another worker won’t add value? They don’t hire.
So:
- You work.
- You create value.
- Your wage = that value (in theory anyway).
Supporters of this theory were all about its “predictive” powers. Like, they thought it could explain wage trends long-term way better than the bargaining approach. But real life? It's not always that clean-cut.
Modern Wage Ideas – It’s... Complicated Now
These days? It’s not one theory. It’s a mix of a bunch of stuff. Some old ideas, some new.
- Supply and demand still matter.
- Unions and worker negotiations? Yep.
- Minimum wage laws play a big role.
- Tech and automation are changing the game.
- Oh, and don’t forget government regulations.
It's messy. One job might follow a totally different logic than another. That’s just how things are now. No one-size-fits-all.
So, What’s the Takeaway?
Wage theories—whether it’s the depressing “subsistence” model, the more logic-based “marginal productivity” one, or the modern mashup—all try to explain the same thing: Why do people earn what they earn?
Each theory came from its own time, shaped by what society looked like then. And while none of them are perfect, they do help make sense of why wages vary, why some jobs pay more, and how policies might shift things in the future.
Honestly? Understanding this stuff helps you see behind the paycheck.
Want a TL;DR (Too Long; Didn’t Read)?
- Subsistence theory = workers just survive.
- Marginal productivity = workers get paid what they contribute.
- Modern mix = everything from skills, laws, supply, demand, bargaining, and beyond.
That’s the gist. Not perfect, but closer to how real people explain things.
Take a look at the detailed post on the topic -
