Iron law of wages

The iron law of wages, also known as the bronze law of wages, was an economic theory expounded by some classical economists at the end of the 18th century and early 19th century, according to which real wages tend "naturally" towards a minimum level, which corresponds to the minimum subsistence needs of the workers. Any increase in wages above this level causes families to have a greater number of children and therefore an increase in the population, with the consequent increase in competition for employment will cause wages to fall back to that level. minimum.

David Ricardo

It is also the title of an 1817 publication written by classical economist David Ricardo (Iron law of wages), to explain why wages drop to subsistence level, David Ricardo based his argumentation in the Law of Diminishing Returns to Land. As the best lands were occupied, the growing population moved to lands with lower productivity, that is, marginal lands. When the land only gives to subsist, the salary is therefore subsistence. Due to competition among workers, moreover, that wage will be the same for all workers (even for those who work on land with higher productivity). David Ricardo's argument can also be extrapolated to an industrial economy (not only agricultural) if we also assume diminishing returns to the capital factor.^{[citation needed]} However, according to the Ricardo himself, the market price of labor in a society that was endowed with greater capital and technical advances, could exceed the subsistence rate for a long time.

This law influenced Karl Marx, in his early pessimistic vision, about the possibility that workers could benefit from capitalism. However, it is a frequent mistake to consider that Marx agrees with Ricardo regarding this law, since for the former, the quantity and type of goods necessary to reproduce the labor force have a historical and cultural character; They are not necessarily at a minimum subsistence level.

Ferdinand Lassalle later disclosed it as the "Economic Bronze Law" (Das echerne ökonomishe Gesetz, 1863), when comparing it to the permanence of laws written on bronze plates.

Criticism

Since the spread of birth control, Malthus's observation that the supply of workers always exceeds the demand has ceased to hold, and wages in most countries have risen well above subsistence level, although they remain at that level in countries that do not allow birth control.

Some modern economists believe that companies pay their workers above subsistence levels to make them more efficient. In efficient wage theory, firms ensure that their workers have enough money to buy food and lodging because workers who are adequately fed and housed are more productive than those who are not.

However, this explanation does not take into account the law of supply and demand, which is considered by other economists. Under this explanation, workers enter and remain in an industry for the wages offered. Growth industries offer higher wages, forcing others to pay more to keep their workers, at least as long as the supply of workers does not exceed demand. That is, the more companies there are, the wages are higher in the labor market, and the fewer companies there are, the wages are lower.

However, in conditions of high unemployment the rule can be applied again, since said unemployment implies the impossibility of going to any other sector at the same time that it indicates the overabundance of labor: the salary of a job, as a means of sustenance, it is scarce, and therefore it is declining again.