Project

On

Compensation Management

QUESTION

Q1) Subsistence wage theory is related to minimum wage theory. Elaborate with examples

Name: - Aman Bhattacharya Submitted to: - Prof. Sameer

Roll No: - A209 Format: Report writing

Submission Date: - 30th April 2011

Subsistence wage theory is related to minimum wage theory.

Elaborate with examples

Ans) The Subsistence Theory of Wages, also known as the "Iron Law of Wages,"

was an alleged law of economics that asserted that real wages in the long run would

tend to the value needed to keep the workers' population constant. It was introduce

by David Ricardo in the year of 1817.

According to this theory, wages are tending to maintain the level just significant to

maintain the workers at the minimum subsistence level. So the supply of labour

becomes high in number or large. The supply of labour brings wages downward to

maintain the subsistence level, the supply of labour decrease until wages rise to

maintain the subsistence level. It supposed the supply of labour is infinitely elastic.

For example: In the developing and under developed countries like India, Pakistan,

Sri-Lanka, and Bangladesh they don’t have the proper subsistence wage law for blue

collar employee specially in factory as well as real estate construction unit where

unemployed people are hired for the hazardous/hectic work with the offer of peanut

wages because the management was knew that these employees can’t bargain due

to lack of knowledge and if they bargain factory management pick someone else for

the same work in cheap wages or some time more cheaper from that . It also happen

due to large number growing population in the nation and lack of literacy. So to stop

this kind of malfunction with the employees the government must follow the minimum

wage law properly.

The basic objectives of minimum wage policy that should be in favours of

employee/labour.

To abolish malpractice and abuse in wages payment

To set minimum wages for working having weak bargaining power because of

either they are unorganised or inefficiently organized.

To obtain for the worker a just share of economic development.

For proper utilisation of man power.

The governing body Wages/labour commission

National wages committee, entrepreneur and trade regulating unionist they are

responsible for structuring the wages and minimum wages act.

How useful is this in practice?

• Market-clearing wage different in different labour markets – by age, education,

region

• Typically minimum wage does not have much variation – too high in some

markets, too low in others.

• It is a blunt policy instrument

• Also have only considered single employer – interactions are likely to be

important

If it govern well by the committee then the poverty level of the country can be

stabilized and the per capita income also have an chance to grow because India is

growing GDP with the low per capita income.