Question

Briefly explain the Subsistence Theory of Wages.

Answer 1

The subsistence theory of wages:

1. Subsistence theory of wages is one of the oldest theories of wages.
2. According to this theory, the wage must be equal to the subsistence level of the labourer and his family.
3. Subsistence means the minimum amount of food, clothing and shelter which workers and their family require for existence.
4. If workers are paid higher wages than the subsistence level, the workers would be better off and they will have large families.
5. Hence, the population would increase.
6. When the population increases, the supply of labourer would increase and therefore, wages will come down.
7. If wages are lower than the subsistence level, there would be a reduction in population and thereby the supply of labour falls and wages increase to the subsistence level.