7: Necessary Wages
The phrase "necessary wages" is often used in economics, and misinterpreted by laymen to mean something entirely different.
- In an economic sense "necessity" considers only the supply and demand of labor as needed by a given employer in a given market. A specific wage is necessary to attract the number of workers that a given employer needs.
- In the mouths of laymen, "necessity" is interpreted to mean that the wages received by a worker provide for the needs of himself and his family, which is altogether different.
The amount of wages necessary to attract scarce labor is often far more than is needed to provide for the needs of his family. And the amount of wages necessary to attract plentiful labor is often less, though this is not sustainable - the intelligent worker will recognize that he cannot afford to accept this level of wage if his family is to survive, and the unintelligent one will learn the same lesson the hard way.
The amount of wages an employer can afford to provide to his workforce is limited in turn by the demand for his product in the marketplace. He cannot afford to pay his workers a wage that would price his goods above the market's willingness to pay, or his business will be unsustainable. Just as with the worker who accepts a wage insufficient to his needs, the business that pays workers in excess of the value they create is bound for bankruptcy.
Ultimately, the goal of both workers and employers is sustainability, and it is not in the interests of either to deviate from equilibrium for long. And in truth, they do not. Most wages are enough to provide for the necessities of life and afford workers some margin of luxury, if they are judicious in their household spending.
The necessary wages may be very low, as they depend on the standard of living in a given market. This factor makes the price of labor in many poorer nations, where many are happy to earn the bare necessities of life, than in established nations in which the lowest ranks of society demand a moderate level of luxury in exchange for their labor.
There's a fair amount of detail about the way in which the diet of people in different locations determines their need of wages, as food is the chief cost of existence: whether they eat rice or oats or wheat or cabbages or whatnot. There's also detail about the luxuries people refuse to do without, whether it is alcohol in Ireland, opium in China, or a copious amount of leisure to participate in religious festivities in India.
He also refers to the work of one "Professor Rogers" who studies the consumption habits of various peoples, to note that many among the working classes consume luxury in a manner that is not immediately evident: their consumption preferences turn to more costly foods and clothing. AS their income increases, they switch from eating turnips to eating wheat bread, to eating cheese and meat; they switch from cotton to linen to wool to silk in their clothing.
As an aside, he reckons this is quite beneficial because people who live on the cheapest available materials are hard pressed when they are unavailable. The potato blight caused widespread starvation in Ireland, because their main source of nourishment was unavailable and they could ill afford to switch to a different staple food. The same blight was hardly noticed in England, where wheat bread is a staple. If it were wheat instead of potatoes, the English could afford to "step down" in their diets.
The greater determinant of necessary wages is the market for labor - specifically, the price being offered by other employers in a market. Workers, like any supplier, seek the highest price they can fetch for their services and an employer who offers less than others will find himself unable to secure the amount of labor his operations require.
In Walker's time, a mobile population was also an issue: workers can more easily remove themselves from a poor labor market and migrate to a better one, which is the reason many European nations have experienced an exodus of labor, mainly to America. There are in England many towns, and even entire regions, abandoned by their population. This becomes a vicious cycle, as they remove themselves from these markets not only as producers, but also as consumers.
He mentions, for example, the welfare of the Irish in America, who fled lives of deprivation and squalor in their native land to arrive in a country where their labor was more valued. In America, Irish immigrants enjoy luxuries such as tea and sugar, are able to save to purchase property, dress their wives and children decently, and so on. It is not that they work harder, but are more well-rewarded for it.
He also mentions that it is also fairly simple for an employer to select a favorable location to establish a manufacturing operation, and the cost of labor may be a significant determinant of which location is most profitable. Proximity of resources, proximity of customers, and proximity of labor must be balance against one another.
Ultimately, wages may fluctuate in a range - between the least that workers can afford to accept in order to sustain their lives and the most that employers can afford to pay in order to price their products competitively.