Book 1 Chapter 8e of The Wealth of Nations Simplified

Sticky Wages From the Inverse Relationship Between Labour and Stock Icon

January 15, 2020

44 Some pretend that:

  • workers are more idle in bountiful years and more industrious during a shortage .
  • a good harvest relaxes their industry, while a scanty one quickens their industry.

Above-ordinary wages may render some workers idle, but not all workers. In reality, people work better:

  • when they are well fed than ill fed,
  • when they are in good spirits than when they are disheartened,
  • when they are in good health, than when they are sick.

Shortages create sickness among the common people which reduce their productivity.

45 During years of plenty, workers frequently leave their employers and work for themselves.

But the cheapness of goods:

  • increases the fund for wages
  • encourages masters, especially farmers, to employ more.

Farmers then expect more profit from their wheat by adding more workers than by selling it at a low price.

  • The demand for workers increases, raising wages during the glut.

46 In years of shortage, the difficulty and uncertainty of subsistence makes workers eager to return to employment.

  • But the high price of goods reduces wages.
    • It makes employers lessen their workers.
  • Poor independent workers consume their little stocks and are obliged to become journeymen for subsistence.
  • The labour market becomes oversupplied.
    • Many are willing to take lower wages, thus lowering wages.

47 Employers make better bargains with their servants in a shortage than in a glut.

  • They naturally commend shortages as being more favourable to industry.

Landlords and farmers are the two of the largest classes of masters.

  • The rents of the landlord and the profits of the farmer depend very much on food prices.
    • Thus, they are happy during shortages.

It is absurd to think that men would work less when they work for themselves, than when they work for other people.

A poor independent worker will generally be more industrious than even a journeyman who works by the piece because the worker enjoys the whole produce of his own industry.

  • The journeyman shares his own produce with his employer.
  • The independent worker is less tempted by bad company because he is independent.
  • But dependent workers in large factories often have their morals ruined by such bad company.

The independent worker is superior to regular employees whose wages are the same whether they do much or do little.

  • Bountiful years increase the number of independent workers relative to employees.
  • Shortages reduce their number.

48 Louis Messance is a knowledgable and ingenuous French author. He is the receiver of the tailles in the election of St. Etienne.

He showed that the poor do more work in bountiful years than in shortages by comparing the quantity and value of the goods:

  • in the coarse woollens at Elbeuf
  • in the linen of Rouen
  • in the silk of Rouen.

He showed that the quantity and value of those goods:

  • were greater in bountiful years than in shortages
  • greatest during the most bountiful years
  • least during the worst shortages.

All three were stationary manufactures, or which their production was neither going backwards nor forwards.

49 Linen manufacture in Scotland and the coarse woollens in the west riding of Yorkshire are growing manufactures.

Their production is increasing in quantity and value. However, its variations are not connected with the dearness or cheapness of the seasons. 1740 was a year of great scarcity. Both manufactures declined very much then. 1756 was another year of great scarcity. The Scotch manufacture made above average advances. But the Yorkshire manufacture declined. Its produce did not rise to what it had been in 1755 to 1766, after the repeal of the American stamp act.

In 1766 and 1767, it greatly exceeded its past produce. It has continued to advance ever since. 50The produce of all great manufactures for distant sale does not depend so much on the dearness or cheapness of the seasons.

It depends more on:

  • the demand of the consuming countries,
  • peace or war,
  • the prosperity or declension of other rival manufactures, and
  • the good or bad humour of their principal customers.

Most of the work, which is probably done in cheap years, never enters the public registers of manufactures.

The male servants who leave their masters become independent workers. The female servants return to their parents and make clothes for themselves and their families. The independent workers are employed by their neighbours to manufacture for family use. Their production is frequently not recorded. It does not make its way into publications which our merchants and manufacturers use to announce a nation’s prosperity or decline.

51 Although variations in wages are frequently opposite the variations in the price of provisions, the price of provisions has an influence on wages.

The money price of labour is regulated by:

  • The demand for labour
  • The price of the necessaries and conveniencies of life.
  • The money price of labour depends on the money needed to purchase the necessities and conveniences of a labourer.

These amount of these necessities and conveniences depends on the demand for labour. The demand for labour depends on the increasing, stationary, or declining population size. The money price of labour is sometimes high when the price of provisions is low.

But it would be still higher if the price of provisions were high.

52 The money price of labour rises in years of sudden and extraordinary plenty because the demand for labour increases.

53 In a year of sudden and extraordinary plenty, many employers have funds to employ more industrious people than the year before.

The employers who want more workers bid against each other. They sometimes raise both the real and the money price of labour. The money price of labour sinks in years of sudden and extraordinary scarcity because the demand for labour sinks.

54 In a year of sudden and extraordinary scarcity, the funds for employing industry are less than the year before.

Many people are unemployed and bid against each other to get employment. They sometimes lower both the real and money price of labour. 1740 was a year of extraordinary scarcity. Many people were willing to work for bare subsistence. In the succeeding years of plenty, it was more difficult to get workers.

55 The scarcity of a dear year reduces the demand for labour and lowers wages, which is then raised by the resulting high price of provisions.

The plenty of a cheap year increases the demand and raises wages, which is then lowered by the resulting cheapness of provisions.

Those two opposite causes counterbalance each other. It is probably why wages are everywhere more steady and permanent than the price of provisions.

56 The increase in wages:

  • increases the price of many commodities by increasing its wage component, and subsequently
  • reduces the consumption of commodities at home and abroad.

However, the increase in prices is more than compensated by the increased purchasing power of the people which happens with the increase of stock and the division of labour in society.

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