Iron law of wages
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
The iron law of wages is a classical idea linked to David Ricardo and later to Ferdinand Lassalle. It says that in the long run, real wages are pushed down to the subsistence level, just enough to survive. The cause is population pressure. When wages rise above subsistence, families grow and more workers join the labour force, and the extra supply of labour drags wages back down. It shows how gloomy classical economics was about workers' prospects.
Example
Say a good harvest lifts farm wages above what workers need to live. Under this law, families have more children who survive. A generation later there are more labourers competing for the same jobs, and wages fall back to subsistence.
Don't confuse with
- Malthusian theory of population: this is about population outrunning food supply, held back by famine, disease or moral restraint. The iron law applies the same population pressure to wages.
- Minimum wage: a legal floor set by the government. The iron law is a claimed market tendency, not a policy.
Related concepts
- Mercantilism
- Bullionism
- Physiocracy
- Classical economics
- Laissez-faire
- Night-watchman state
- Division of labour
- Labour theory of value
- Say's law
- Malthusian theory of population