Wages and In a sense, labour and capital compete with each other for employment by the entrepreneur. If the employer finds that a machine will do a certain class of work more cheaply than ordinary labour, some workers will be partly displaced or be compelled to accept a lower wage. This application of the "law of substitution" is constantly in operation. The efficient employer endeavours to find just that proportion of capital and labour which renders him the best return. The wages of labour are influenced to a certain extent by the proportion they bear to the interest on capital and other standing charges. In one industry the ratio of the wages bill to the total expenditure may be very high, as for example in the coal-mining industry. In another the ratio may be smaller, as in the cotton industry. Other conditions remaining the same, a demand for higher wages in in the coal-mining industry is less likely to be successful than a similar demand in the cotton industry, since the extra burden in the first case would be greater proportionately than in the second. Numerous other considerations might arise to reduce or nullify this particular influence, but its existence should not be disregarded. The investigation of the factors governing wages falls into two parts. Firstly there is the question of relative wages, viz., what determines the rates of wages as between one class of labour and another? Secondly there is the problem of general wages, viz., what determines the share of the national dividend that goes to labour as a whole? To a large extent these questions merge into one. An answer to the second provides a part, if not whole, answer to the first. Relative Adam Smith* submitted that wages varied from trade *Wealth of Nations, Book I. SOC. ECON. 4 to trade for the following reasons: (i) the agreeableness or disagreeableness of the employments, (ii) the easiness or cheapness of learning them, (iii) the regularity of employment, (iv) the trust to be reposed and (v) the possibility of success. These reasons still hold true, but they do not offer a thorough explanation. If (ii) is taken to include the immobility of labour, the reasoning is more complete, for if there were no hindrances to a perfect flow of labour from one quarter to another, there would not be the serious differences in remuneration one now finds. Since Smith wrote, trade unions and employers' federations have grown to such a degree that the rate of wages now depends very largely on the bargaining power of the parties. Again, Smith did not attribute sufficient importance to the power of custom and tradition in determining rates of payment. There is no doubt that people become habituated to certain differences in the rates of pay as between one class of labour and another, and that these rates may continue even though they do not necessarily represent the ratio of respective worth to the employer. The force of custom may prevent a man from getting his proper share of the product. For many years the wages of the semi-skilled labourer were considerably lower than those of the skilled artisan. It is certain that the differences in wages were not always due to differences in productivity. Bargaining power and custom had much to do with the respective rates of pay. It is interesting to observe that during and since the war, the gap between the earnings of the semi-skilled and skilled has been appreciably reduced. This "levelling-up" of earnings is due to the improved organisation and bargaining power of the semi-skilled, to the weakening of custom in these exceptional years, and to the recognition that, with the development of machinery, the line between the skilled and the semi-skilled is not so clearly defined as it was often thought to be. But these considerations do not go to the root of the main problem as to what determines the share General of the social product that goes to labour as a whole. Explanation of the factors regulating relative wages does not inform one of the principles underlying and determining general wages. As stated above, a solution to the latter question would help in a solution of many of the difficulties presented by the former. Analysis of the main problem, however, would involve inquiry into the whole of the economics of distribution, and this would demand far wider treatment than can be afforded in these pages. It is only possible to outline the several attempts at an explanation of wages, not in order to present a proper account of these theories, but merely to indicate the many aspects of the problem. It will be seen that while a particular theory is rejected on this or that ground, there may still remain in it an important element of truth which no final theory can afford to ignore. The An early wages theory was that the reward of labour tended to equal the sum necessary to procure the means of bare subsistence. By this was meant the minimum amount necessary to keep the worker in physical efficiency, together with the irreducible amount required to bring up a family of producers-to-be. The subsistence theory was in vogue among the Physiocrats and the Classical School, and was restated about the middle of last century by German socialists. It became known as the Iron or Brazen Law of Wages. Influenced by the Malthusian doctrine, it assumed an almost automatic expansion or contraction of population. Should the wage move above subsistence level the workers would have more children, and the ultimate competition for employment would force wages down. Should the wage fall below subsistence level, population would diminish and wages would rise. The subsistence theory appears to be partly borne out by the record of such countries as India and Egypt, but it does not offer a satisfactory explanation of conditions in Europe and the "new" countries. Real wages in Britain have considerably increased during the last hundred years. What used to be considered a comfort or even a luxury may now rank among the conventional necessities of life, and be included in the subsistence estimate. The assumption that population automatically increases with a rise in wages is not warrantable in all cases, for together with a rise in real incomes there has been on the average a pronounced falling-off in the birth-rate. 66 The theory is further disproved by the action of trade unions, which have undoubtedly helped in raising the wage-earners' income. Nor does it account for the disparities in wages among different classes of workers, whose subsistence" cannot be said to vary in the same degree as their wages. But the most serious drawback to the subsistence theory is its failure to recognise the importance of demand in determining the rate of payment. The productivity of labour necessarily has great bearing on its remuneration, and no theory working from the supply side only can give a satisfactory explanation of values in general, or of wages in particular. Yet the element of truth in the theory must not be overlooked. It cannot be denied that, in the absence of any resisting power, the wages of labour may drop to bare subsistence level, or, for a period, even below. The conditions of labour early in the 19th century were such as to give the theory more than a semblance of truth. Even at the present time the wages of many workers are little, if at all, above the minimum necessary to provide a bare existence. The subsistence theory of itself is not a correct explanation of the forces determining wages. But obviously the rate of wages cannot permanently be below subsistence. The minimum level has therefore been indicated. The maximum has yet to be considered. The Wages With the Industrial Revolution the importance of capital as a factor of production increased enormously, and certain economists, in their desire to recognise the added significance of capital, tended to magnify its real importance. J. S. Mill developed a theory of wages which stated in effect that the reward of labour was paid out of "circulating" capital, that there was a pre-determined fund from which the workers could be paid. This fund constituted the demand for labour. The number of labourers composed the supply of labour, and any increase in the number of workers would eventually reduce the share going to each. (The influence of the Malthusian doctrine of population was therefore still marked.) "Wages depend mainly upon ... the proportion between population and capital... Wages not only depend on the relative amount of capital and labour, but cannot, under the rule of competition, be affected by anything else. Wages, meaning of course the general rate, cannot rise but by an increase in the aggregate funds employed in hiring labour, or a dimunition in the number of competitors for hire; nor fall, except either by a dimunition of the funds devoted to paying labour, or by an increase in the number of labourers to be paid."* According to this theory, an increase in wages for a particular class of workers would only be possible at the *Principles of Political Economy, Bk. II., Ch. XI., § 1. |