wages are the returns earned by workers for their labour. Real wages reflect the actual purchasing power of these returns adjusted by price levels, while money wages involve no adjustment for inflation. The importance of wages has grown since the
enclosure movement resulted in hired labour replacing self-employment on the land and as industrialization produced the
factory system.
Real wages in 12th-cent. England were closely correlated to pressures of population change. Population growth in the 12th and 13th cents. reduced per capita output and famines resulted in years of bad harvests. The considerable impact of the
Black Death (1348–9) on the labour force acted as a counter-balance and following it real wages rose considerably. By the 15th cent. the wages of skilled workers attained a level not reached again until the latter half of the 19th cent. Increased population pressure in the 16th cent. brought real wages down and after 1600 the index of real wages was about half its level a century earlier. The period following the Civil War saw a gradual improvement which continued through the mid-18th cent. as the
agrarian revolution offset the effects of a rising population. Higher farm production also contained the fall in wages which accompanied the Napoleonic wars. Real wages rose slowly through the 19th cent. as industrialization expanded and, with the marked exception of the Great Depression and the world wars, rose throughout the 20th cent.
The pattern of money wages is different, with both a remarkable consistency characterizing long periods from the 13th until the mid-20th cent. and the absence of any major falls. Real wage adjustments have generally come about through price inflation effects. Only major shocks have brought about significant upward shifts in monetary wages—the Black Death, the Tudor debasement of the currency (1532–80), and the Napoleonic wars. The recent past has seen money wages rising since the investment boom of the post-Second World War period. Initially this may have been explained by the reluctance of employers to limit wage rises when productivity was rising rapidly but subsequently expectations on the part of labour made it difficult to contain further rises.
Various theories have been developed to explain levels of real wage. The classical economists Adam
Smith and David
Ricardo in the late 18th cent., although arguing that wages are an essential material necessity of production, tended to treat them as part of a distribution process—an approach continued by
Karl Marx. Alternatively, T. R.
Malthus placed considerable emphasis on the effects of population on wages—if real wages rose above subsistence population growth would push them down again. The neo-classical framework associated with Alfred
Marshall focused on the role of real wages in balancing the supply of labour and the demand for its services as reflected by its marginal product. Neo-Keynesian economists have paid more attention to imperfections in the labour market, which make structural changes difficult as aggregate levels of demand change.
Kenneth Button