Subsistence theory of wages (Iron law of wages), applications and limitations

Subsistence theory of wages (Iron law of wages). According  to this  theory,  workers  are given  a wage   which   is just   enough   to  enable   them  acquire   the  basic   needs/necessities  for  example housing,  clothes  and food.

Application of the iron law of wages in Uganda

• Casual worker/unskilled labour are applied basing on the level of their subsistence needs.
• in the subsistence sectors of Uganda, reward to workers is based on basic needs
• entrepreneurs due to profit maximization goal pay workers’ wages just enough to meet their basic needs
• Employers in a bid to retain cheap labour tend to pay wages which are just enough to cater for their subsistence needs

Limitations of the iron law of wages in Uganda

• the law/theory approaches the problem of wage determination entirely from supply side; it ignores the demand for labour entirely thus difficult to apply
• the theory relates wage rates to birth rates/population growth rate which is not the case in Uganda
• According to the theory all workers should be receive the same wage which is not the case in Uganda
• the theory does not  consider the fact that the bare minimum need(s) varies from time to time depending on the price levels, economic conditions, etc.
• the theory is only applicable to the subsistence sector/subsistence level of living but not commercial sector.
• Trade Unions interference in wage determination is not taken into consideration
• contrary to the law, employees worker harder when paid higher wages than when paid low wages