Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 8a: Wages
Chapter 8a: Wages
1The produce of labour constitutes the natural recompence or wages of labour.
2 In the rude state, without land appropriation nor stock accumulation, the whole produce of labour belongs to the labourer.
He has no landlord nor master to share with him.
3 Had this state continued, wages would have increased with productivity from the division of labour.
All things would have gradually become cheaper.
They would be produced by fewer labour and be exchanged for fewer labour.
4 Though everything would have become cheaper, on the surface it may seem that things have become dearer.
Let us supposed that:
Productivity increases 10 times in a General Industry A or a day's work in it could produce 10 times more work than before
While in Specialized Industry B, productivity only doubled
If Industry A bartered its day's produce with the day's produce of Industry B, Industry A's 10 units of work will only purchase 2 units of Industry B's work.
It would appear that each unit of B's work was worth 5 times A's work [5:1] than it was originally [1:1].
In reality, B's work would be twice cheaper than it was originally.
Because had Industry B not improved, its day's work would have cost 10 units of work of Industry A [5:1 is twice cheaper than 10:1].
5 But the rude state could not last beyond the introduction of private property.
It ended long before productivity was increased.
It would be useless to find out what wages were in the rude state.
6 As soon as land becomes private property, the landlord demands a share of what the labourer can produce from it.
His rent payment is the first deduction from the produce of his labour on land.
7 An agricultural labourer seldom can maintain himself fully until the harvest.
Instead, he relies on the stock of his master who employs him for profit.
This profit makes a second deduction from the produce of his labour on land.
8 The produce of almost all other labour is liable to the like deduction of profit.
In all manufactures, most workmen need material support from their employer until their work is completed.
Their employer shares in the produce of their work as his profit.
9 An independent worker might have stock sufficient to:
purchase the materials of his work
maintain himself until it is completed
He is both master and workman
He enjoys the whole produce of his own labour as his profits and wages.
10 Such cases, however, are not very frequent.
In Europe, there are 20 employees for every one independent worker.
The term 'wages' are applied for employees, not independent workers.
11 Wages depend on the contract between employees and their employer, who have conflicting interests.
Employees want to get as much, while their employers want to give as little as possible.
Employees combine to raise wages, while employers combine to lower wages.
12 Employers, being fewer, can combine much more easily without going against the law.
They can have the advantage over the employees who are not allowed by law to combine.
We have no acts of parliament against combining to lower wages, but there are many against combining to raise it.
In disputes between them, the employers can hold out much longer on their stocks for a year, while their employees, who do not have stocks, cannot live without employment perhaps for a week.
In the short run, the employer may not need the employee as the employee needs the employer.
In the long run, both need each other.
13 Only the most ignorant imagine that employers rarely combine.
Employers are always and everywhere in a tacit, constant, and uniform combination not to raise wages above their actual rate and even to sink it below that.
To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals.
We seldom hear of this combination because it is the usual state of things which nobody ever hears of.
These are always conducted with the utmost silence and secrecy until the moment of execution.
These are frequently resisted by workers through a natural union to raise wages pointing out:
high profits of their employers from their work
They always perform the loudest clamour and sometimes with violence and desperation to get a speedy decision.
The employers are just as clamorous and always ask the help from the government against the workers.
The violence of the union generally ends in nothing and their leaders get punished because of:
the judgement by the government
the determination of the employers
the workers' need to get back to work
14 Although the interest of the employers frequently prevail, it is impossible for them to lower the wages of workers below a certain rate for prolonged periods
15A man must always live by his work, and his wages must at least be sufficient to maintain him.
On most occasions, his wages must be more in order to bring up a family and continue the race of workers for the next generation.
According to Cantillon:
The lowest labourer must earn at least double his own maintenance so that he can bring up two children with the help of his wife.
His wife's labour can only support herself.
Half of the children of poor families die before adulthood.
Poor couples must therefore attempt to rear at least four children so that two might live up to adulthood
The maintenance of four children is supposed to be nearly equal to that of one man
The labour of a slave is worth double the maintenance of a slave.
The labour of the meanest labourer cannot be worth less than the labour of a slave.
Therefore, in order to bring up a family, couples must earn more than what is necessary for their own maintenance; but in what proportion I shall not take upon me to determine.
The Demand for Workers
16 There are certain circumstances, however, which allow labourers to raise their wages above the lowest rate.
17 When the demand and employment for all kinds of workers is continually increasing, the workers do not need to combine to raise wages.
The scarcity of workers creates a competition among employers who bid against one another to get workmen.
They break the natural combination of masters not to raise wages.
18 The demand for those who live by wages must always be in proportion to the funds for paying wages.
These funds are of two kinds:
The revenue in excess of the maintenance by their employers
The stock in excess of what is needed by their employers
19 When the landlord has excess revenue, he uses it to employ more menial servants.
Increase this surplus, and he will naturally increase the number of those servants.
20 When an independent worker has excess stock for his own work and maintenance, he uses it to employ journeymen to profit from their work.
Increase this surplus, and he will naturally increase the number of his journeymen.
21The demand for wage-earners increases with the increase of a country's revenue and stock, and cannot possibly increase without it.
The increase of revenue and stock is the increase of national wealth.
The demand for wage-earners, therefore, naturally increases with the increase of national wealth, and cannot possibly increase without it.